The second of two posts that focus on using your expertise of management and also strategy to a scenario situation.

Introduction

Part 1 taken into consideration the complexities of strategy planning and how they can be damaged down into three main areas. Part 2 by a similar simplification method to the concerns of strategic an option and strategy implementation.

You are watching: Diversification becomes a prime strategic option in all but which one of the following situations

earlier to optimal


strategy choice

Johnson and Scholes failure the issue of strategic selection into three distinct subheadings, i m sorry are:

On what basis do we decide to compete?Which direction must we choose?How room we walk to attain the liked direction?On what basis execute we decision to compete?

A beneficial framework to use below is Porter’s share strategies. Michael Porter declared that a firm that is wishing to attain competitive advantage over that rivals is challenged with 2 choices:

Choice 1: Is the firm seeking to contend by achieving lower expenses than the rivals achieve and by charging similar prices because that the products and also services the it offers, in order to achieving advantage via exceptional profitability? Or…

Is the agency wishing to distinguish itself and the customer is all set to pay a premium price for the included value i beg your pardon the client perceives in the product, and also thereby enjoys higher margin 보다 the regardless of product.

Choice 2: What is the scope of the area in i beg your pardon the company wishes to acquire competitive advantage? Is that industry-wide or is it restricted to a specific niche?

The answer to these two choices leave the organisation faced with three generic strategies, i beg your pardon are characterized as:

cost leadershipdifferentiationfocus.

1. Expense leadership Set out to it is in the lowest cost producer in one industry. By developing at the lowest feasible cost the manufacturer can compete on price through every various other producer in the industry and also earn the greatest unit profits.

In stimulate to accomplish cost leadership some that the following need to it is in in place:

Seek to set up production framework for mass manufacturing as these will certainly facilitate the economic situations of scale benefits to be achieved.Invest in the latest modern technology – improved quality less work needed.Seek to attain favourable access to resources of life materials.Look to build product designs that facilitate automation.Minimise overhead costs by exploiting bargaining power.Concentrate on productivity objectives and constantly seek to enhance efficiency and also economy – because that example, ZBB, value chain analysis.

One should additionally be conscious of the drawbacks of such a strategy, such together the need to continually store up to day with potential changes in technology or consumer tastes.

2. Differentiation A for sure differentiates chin from its rivals when it gives something distinctive that is an useful to buyers. Differentiation occurs once the identified product is maybe to obtain a price premium in the industry that is above the cost incurred to produce the differentiation.

As a consequence of differentiation being around uniqueness, it is not really feasible to offer an exhaustive perform detailing how a certain may distinguish itself. Come truly differentiate yourself we must recognize the product or company offered and the customer to who you are marketing it.

Ways of achieving differentiation:

Image differentiation Marketing is supplied to feign differentiation wherein it otherwise does no exist – ie photo is developed for the product. This can likewise include cosmetic distinctions to a product the does not enhance its performance in any type of serious means – for example, perfume – colour, size, packaging.Support differentiation More substantial, yet still has actually no impact on the product itself, is to distinguish on the communication of something that goes together the product, part basis of support. This may need to do with offering – because that example, 0% finance, 24-hour delivery.Quality differentiation This way the features of the product that make it far better – not fundamentally different, but just better. The product will perform with:- better initial reliability- higher long-term durability- exceptional performance.Design differentiation Differentiate on the basis of design and offer the customer something the is truly different as it breaks away native the dominant style if there is one – because that example, Apple’s iMac computer.Reward that a differentiation strategy Consumers are likely to pay a higher price for the goods because of the included value developed by the differentiation.

3. Emphasis A focus strategy is based upon fragmenting the market and also focusing on details market niche. The firm will not industry its products industry-wide but will concentrate on a particular kind of buyer or geography area.

Cost focus: This involves selecting a certain niche in the market and also focusing ~ above providing commodities for that niche. Through concentrating ~ above a restricted range of commodities or a little geographical area, the costs can be maintained low.

Differentiation focus: select a certain niche and concentrate on competing in that niche top top the basis of differentiation – because that example, luxury goods.

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An example of a focus strategy


We stated that the alternative directions accessible to a business could be defined in general terms together follows:

Do nothingWithdrawalMarket penetrationProduct developmentMarket developmentDiversification

Do nothing This requires following the existing strategy while events around change and can regularly prove to be a effective short-term strategy. Basically, if an organization is exposed come some type of competitive threat, its momentary objective is to not react and, hence, get connected in what can be an high-quality decision.

Sell out/withdraw indigenous the industry This may be complied with so regarding maximise the return top top a business that might be at the peak of its bike and, hence, will be in line through the goal of maximisation the cash flows. Tap the money from a company sector might be chosen to provide the business an ext focus – because that example, Richard Branson’s decision to offer his original organization Virgin documents to concentrate on the airline business.

Market penetration This requires increasing the market share in the existing market v the current product. Market share have the right to be enhanced by such methods as improved quality, performance or raised marketing activity.

Product advance This involves introducing a new product right into the current market. The product change is frequently the result of changes and also modifications come an existing successful product – for example, Mars ice cream cream. This is an alternative to the current product and also builds on current knowledge and skills.

Market development In this case the organization keeps that tried and tested commodities but aims to use them to various market segments. This strategy maintains the protection of the present product while permitting extra revenue to be generated from brand-new segments – because that example, McDonald’s and also its geographical market development.

Diversification This is the most risky of the product sector strategies together it involves the development of a totally brand-new product in a brand-new market. Diversification can either be connected or unrelated.

Related diversification

This involves breakthrough of the product and also market however still continuing to be within the vast confines that the industry. There space three key types.

Backward. A advancement into the organization that inputs into the present company – because that example, move up the it is provided chain right into raw product inputs.Forward. A development into activities concerned through a company’s outputs likewise called downstream integration – for example, relocate down the supply chain into distribution activities.Horizontal. Activity into activities that are competitive with existing tasks – for example, to benefit access to sector or technology.Unrelated diversification

This entails movement into markets that bear small relationship to the existing one and also is regularly the result of a benefit motive.

Ansoff stood for the critical four options in his product/market matrix.


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Ansoff"s product market matrix


How?

The final difficulty that should be get over is to decide exactly how the chosen strategic option should be undertaken.

The options available are:

internal developmentexternal development/acquisitionjoint development.

Internal development Reasons Often undertaken to keep the existing equilibrium within the firm as it is much less disruptive 보다 an acquisition. An additional reason may be the there is not enough finance available for an salvation or the the federal government may protect against acquisition/merger v legislation.

Acquisitions

If over there is adequate finance available an acquisition will administer a an extremely quick method of providing access to new product/market areas and also the brand-new organisation will certainly have economic climates of scale advantages.

Joint breakthrough A officially agreement in between two or an ext organisations to undertake a new venture with each other – for example, Airbus (spreading the cost).

Methods of joint development

Consortia. 2 or much more firms working together to re-superstructure the costs and also benefits that a organization opportunity.Joint venture. A separate organization entity whose shares are owned by 2 or more business entities.Strategic alliance. A long-term agreement to re-superstructure knowledge, modern technology or organization opportunities.Franchising. The purchase of the best to exploit a business brand in return because that a resources sum and also a re-publishing of earnings or turnover. The franchiser likewise usually gives marketing and also technical assistance to the purchaser of the franchise.Licensing. The ideal to exploit an creation or source in return for a re-publishing of proceeds. Differs from franchise due to the fact that there will be little central support.

To summarise, we have the right to useFigure 1. As soon as all the alternative options have been produced we must evaluate their appropriateness prior to making a choice. A helpful framework to apply when considering the appropriateness of an choice is:

suitabilityfeasibilityacceptability

SuitabilitySuitability identifies the level to i beg your pardon the propose strategy improves the situation identified in the strategy analysis. The following questions need to be addressed around the strategy options:

Does it close the to plan gap?Does it resolve threats and also weaknesses?Does it construct on determined strengths and also exploit opportunities?Does that fit in with the organisation’s mission?Will the portfolio remain balanced?

Feasibility The worry of feasibility evaluates whether the liked strategy can be applied successfully. The sources the organisation has at its disposal will obviously identify this. To conserve time, simply think around the 6Ms.

Acceptability The final problem to address is whether the selected strategy will satisfy the expectations of the crucial stakeholders in the firm and also typical worries to be looked at would incorporate the level that risk and return resulting from the option.

Remember the in the test it is unlikely that you room going to get a inquiry that asks you to regurgitate the information on strategic choice in the way in i m sorry I have actually just described to you. Concerns will usually touch ~ above some component of the procedure we have actually described and if you have an detailed understanding of everything that we have actually covered friend will have the ability to construct much much more comprehensive arguments in the exam. We will display this in a previous exam concern later.


strategic implementation

The area of strategy implementation consist of many areas from project management to structure. However, as with strategic evaluation and strategic choice, that is feasible to leveling the issues in to a number of an essential sub-headings:

Resource management.Organisational structure.Management that change.

Resource management This will certainly ensure the the 6Ms room working for you in the best way possible. Budgets and other performance monitoring tools are most likely to be provided here.

Organisational framework This will deal with issues concerning the level of centralisation and decentralisation, together with structural kind and style of management.

Management of readjust The scope, speed and also style that the alters need to be closely reviewed in stimulate to attain full commitment come them. A beneficial model of change to mental is cut Lewins’ three-step model, i m sorry involved:

unfreezechangerefreeze.

UnfreezeFor the change to take place the currently equilibrium need to be damaged down before a brand-new one have the right to be adopted.

Change This is the second stage, mainly involved with identifying what the new, preferable behaviour or norm should be, connecting it and encouraging individuals and groups come ‘own’ the brand-new attitude or behaviour. To it is in successful, one should consider the fostering of the adhering to management styles to improve the acceptance of the change:

Participation through employees influenced by the change, so that they feel much more of a feeling of ownership.Education and also communication that the new ways, so the they fully understand what is walk on and also are no in a situation where they space afraid of the unknown and also therefore display resistance.Negotiation may additionally be appropriate if there are large group stakeholders such together a trade union.

RefreezeThis is the final stage, implying consolidation or reinforcement of the brand-new behaviour. Optimistic reinforcement (praise, reward, etc) or an unfavorable reinforcement (sanctions applied to those that deviate indigenous the new behaviour) might be used. Friend should also look in ~ the readjust Kaleidoscope and cultural Web.

Therefore come summarise what we have actually just said:

Strategic choice

On what basis execute we decision to compete? (Porter’s generic strategies.)Which direction must we choose? (Ansoff’s product sector matrix, do nothing, withdraw.)How space we going to achieve the liked direction? (Internal external joint venture.)

Strategic implementation

Resource management (6Ms)Organisational framework (centralisation, decentralisation, certain structural form)Management of adjust (unfreeze, change, refreeze)

Let united state see just how we have the right to expect to gain questioned in this area in the exam.

Question 1 Sample ACCA exam Jerome Gulsand is the owner and chief executive, management of a chain of 20 sports devices shops, Sportak. This shops are clustered in the southern of the country. The agency is privately owned by the family and also the freeholds of this shops, which the company owns and which are on prime sleeve sites, account for the majority of the heritage of Sportak. The agency sells a wide range of sports tools such together golf clubs, tennis, skiing equipment, soccer and other sporting activities equipment. Newly it has broadened its selection to encompass certain varieties of designer sporting activities clothing.

The company was started by Jerome’s dad a 4 minutes 1 of a century earlier when he opened his an initial small shop. Over the following 25 year the agency grew steadily. A major reason because that this successful advancement lay with the philosophy of Jerome’s father that delegated much of the decision-making to the individual shop managers. He believed that this offered the local managers a higher degree of motivation. It also permitted them to respond to neighborhood demand problems as stock ordering was carried out by each shop and also was no organised in ~ the head office. The managers were likewise permitted to build local marketing activities, utilizing sales promotions and publicity together they feel appropriate.

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These shop supervisors were remunerated partly by a simple salary and also partly by a sales-related power bonus, which can be up to 40% that their an easy salary. These methods of operation were satisfactory when the agency was operating in a steady growth environment. However, by late 2007 there was proof that Sportak’s overall position within the industry was weakening. Sales had stabilised but, even more importantly, compete was farming from a variety of discount traders who were prepared to operate on low profit margins but with bigger volumes. The was right now that Jerome took over the agency from his father.Jerome was impatient with the absence of growth. By nature he to be an entrepreneur who sought growth. He to be not certain that the stable organic expansion was appropriate to this conditions. His father’s policy had been to open a save each year, funding this expansion out of current earnings. Jerome experienced that the industry was becoming so competitive the even tiny and specialist sectors were prove to be vulnerable. He thought that just the big, nationwide sleeve chains would certainly survive and also that the smaller sized sized groups would be taken over by the larger chains the sports products retailers who were more lucrative and had actually greater capacity to raise finance.He determined that a ‘dash for growth’ was forced if the company was to attain the vital size to endure in the industry place. It had been said to him the the franchising that the Sportak brand name would certainly be a reasonable and relatively risk-free method of expansion. Growth, using various other people’s money, has its advantages, but it did not appeal to Jerome. He want a an ext ‘hands-on’ approach.At around this time an additional chain that 15 sports shops became obtainable for purchase. This team was in a distinctly separate area the the nation – about 150 miles from Sportak’s present area the operations. Together the as whole sports equipment and sportswear industry was still growing, the price being asked because that this salvation was rather high. However, Jerome was convinced that this to be too an excellent an opportunity to miss. He believed that Sportak required this development so regarding take advantage of the lucrative sales still obtainable in this sector. However, because that an acquisition of this size, it was evident that the growth might not be funded internally. Jerome assumed that he might use the freeholds the the properties Sportak owned as securities for the finance the firm needed to borrow. Before approaching the bank Jerome questioned this issue with his accountant and offered the following concepts for his suggest expansion.In anticipating this propose expansion and also the need to control an enlarged group, Jerome believes the it is time for a strong and centralising leader. Recognising that the current system of product notified is delegated come individual keep managers, that proposes to carry out a centralised purchasing role based upon a warehouse owned and also controlled by Sportak. Separation, personal, instance shop supervisors will be permitted to decide upon their stock range, but they will have to order native the central warehouse collection up by Sportak.Jerome has likewise decided to handle the trouble of marketing and, in particular, promotion. The decentralised approach embraced by his father has not brought around the advancement of a famous image and, therefore, the brand the Sportak demands to be strengthened. Under Jerome’s setup it is proposed to allocate a comprehensive budget – 15% the sales – to spend on push advertising and on windy relations, and this level of appointment will continue for the foreseeable future. Sports individualities will be payment to appear in all stores, i m sorry will have to be re-equipped. By a competent use the merchandising that is hoped that these stores will increasingly be recognised together centres for influencing the fashion that both sports equipment and also clothing. The shop managers will additionally be urged to stock an ext expensive lines of commodities where the margins will certainly be higher and, in addition, they will be intended to host much much more stock. A criticism that the stores once Jerome’s father was in charge was that they were often brief of stock. Most customers to be unwilling to wait because that the product to be ordered and they as such bought indigenous competitors’ shops.Jerome recognised that during this duration of adjust Sportak might lose a number of its an essential shop managers. These people have enjoyed an extensive autonomy, and also although they will certainly still have some flexibility on the stock selection that they offer, they might increasingly view their liberty to plot as supervisors being eroded. In appreciating the these shop managers administer much goodwill and their loss would certainly be damaging to the company, Jerome is proposing to rise their sales-related bonuses together an inducement come stay.Jerome totally understands the the costs incurred in the proposed acquisition involve an ext than the acquisition of the brand-new shops. Keep modernisation programmes for every the shops, and upgrading stock with a wider and more sophisticated variety of products, will also require funding. Forecasts of immediate future sales appear to it is in attractive. Jerome anticipates the sales per keep will climb by around 8% over the following year. That believes the this development in sales, add by his an ext aggressive method to retailing, will enable his bold growth plans for Sportak to it is in achieved. Above all, Jerome wishes to check out his company, Sportak, end up being a nationwide company, no longer having to run as a regional retailer does.In Table 1 is a summary of the figures that have actually been prepared by Jerome’s accountant for discussion. Part of the data has been obtained from trade association statistics as well as government forecasts.

Requirements (a) Jerome Gulsand’s father was a good believer in the decentralisation the both operations and also decision making. To what level has this procedure harmed or benefited Sportak? administer examples to justify your arguments. (10 marks)(b) evaluate the crucial features the you consider to it is in important and also would intend to watch in the business arrangement that Jerome Gulsand would have actually to present to his bank to support his applications for financial assistance. (15 marks)(c) acting in the place of Jerome Gulsand’s accountant, and also using the financial data listed and the intentions occurred by Jerome, evaluate the viability of the strategy that has actually been propose by him. (15 marks)(d) talk about whether a franchise procedure would have actually been a much better option for expansion than an acquisition. (10 marks)