Download Strategic Management (MGT501)

Strategic Management
(MGT501)
Lecture 18
Dr Muhammad Mustafa Raziq
Topic Covered in the Previous
Lecture
• Generic Competitive Strategies
• Strategy Levels
• First Mover Advantages
Topics to be covered in this
lecture
• First Mover Advantages
• Strategic Analysis, Strategic Options, Strategy
Choice
• Norms of Strategy making
5.6.1. Reasons for First Mover
Advantages: Economic and Behavioral
Perspectives
• The first mover advantage theory proposes many
reasons for the first mover advantages both from
the economic and behavioral perspectives:
• Economic Perspective:
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Cost advantage and high profits
Barrier to entry strategies
Switching costs
Economies of scale
Learning or experience curve effects
Positioning with high market share
5.6.1. Reasons for First Mover
Advantages: Economic and Behavioral
Perspectives (continued)
• The first mover advantage theory proposes many
reasons for the first mover advantages both from
the economic and behavioral perspectives
(continued):
• Behavioral Perspective:
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First mover image
Consumer preference formation
First mover behavior stereotype
Learning of novel versus redundant information
5.6.2. Pre-emption Strategies
• Pre-emption strategies are aimed to deter or slow other
firms from entering, and to enhance the incumbent’s
competitive ability against market entrants.
• While strategically thinking about the business model, be it
an entrepreneurial venture or corporate entrepreneurship,
the planner should think of pre-emption strategies in order
to protect its CAs from the latter entrants.
• Pre-emption strategies are employed usually by the first
mover
• The first mover needs to be cautious about the potential of
competing firms which are attracted to the new market
created by the pioneer.
5.7. Strategic Analysis, Strategic
Options, Strategy Choice
• A strategic analysis is done on the internal
resources of the firm and external environment in
order to get different strategic options
• The analysis of the market an all aspects of the
external environment will open up options of new
products, new markets, new product features, new
market segments, new trends, new technology,
new legal framework, new threats etc.
• Internal analysis may throw up new or unused
capabilities, critical deficiencies, underutilized
resources etc.
5.7. Strategic Analysis, Strategic
Options, Strategy Choice (continued)
• Strategic options are creatively formed from the insight
gained through strategic analysis, considering some
guidelines that are context-specific, a few of which are
given as follows:
• Perspectives that guide the strategy of the firm or how a firm
and its products are viewed vis-à-vis competition
• The sources of CAs – core competences, product features,
unique processes, patents
• The innovation capability of the firm; an innovative firm is
likely to craft more strategic options in terms of new product
lines, new processes, new marketing strategy, and new
trajectories for the business.
• The risk management ability of the firm; higher the risk taking
ability, more the strategic options will be for the firm
5.7. Strategic Analysis, Strategic
Options, Strategy Choice (continued)
• Strategic options:
• The external business environment situation. In times of
an economic downturn, the options may be limited,
compared to a boom time, but in economic downturn
there will be new business opportunities
• The generic strategies, the firm is accustomed to. A lowcost strategy firm cannot switch over to a differentiation
strategy easily, as its organizational structure and
systems are attuned to a cost leadership framework.
• Stakeholders interest and influences; a firm with
constant engagement with its customers will develop
more strategic options based on consumer feedback
5.7.1. Second-level Strategic Analysis
• Once the different strategic options are listed out as
strategic directions or choices the actual strategy is
chosen from among the options, which is likely to be as
the best bet. Strategy choice again is a result of another
level of strategic analysis – second level of strategic
analysis which consists of the following steps:
• Assess the firm’s (entrepreneur’s) skills, resources, and
competences
• Assess the competitors resources and competences to imitate,
choke, replicate, out-smart, and suffocate
• Business model analysis based on strategic options
• Risk assessment of each strategic option
• Price-benefit positioning maps
• Analysis of the rate of change in technology and investment
ability
5.7.2. Strategic decision making
and approaches
• Strategic decisions are made by taking into
consideration industry conditions, consumer
preferences, unit cost of production, resource
availability, distribution channels, innovations, or
new projects needed to improve performance and
anticipated competitor moves.
• Choice of strategy is the foremost of strategic
decisions.
5.7.3. Mintzberg Model of
Decision Making
• There are three approaches to decision making
(Mintzberg and Westley, 2001):
• Thinking First: mostly a verbal process involving planning and
programming – involves defining the problem, diagnosing its
causes in a cause-effect search, design possible solutions, and
finally decide which is the best alternative
• Seeing First: visual process involving visioning and imagining
• Doing First: Visceral process involving venturing and learning
– it is acting or trying things out in order to think.
5.8. Norms of Strategy Making
• Some of the norms of strategy making as criterion to
select strategy of a firm are as follows:
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A strategy that leverages existing assets and capabilities
Difficult for competitors to imitate
Based more on intangible assets of the firm
Have at least one difficult to understand component in the
business model
• Strategy that uses renewable resources or that generate and
use safe substitutes for natural resources
• Whether the risks are manageable and do not threaten the
survival of the firm
• consistency in mission, vision, strategic objectives, activities,
structure, business model and systems
5.8. Norms of Strategy Making
(continued)
• Some of the norms of strategy making as criterion to
select strategy of a firm are as follows (continued):
• Strategy that engages society or customer segments in
positive ways, enhancing their quality of life. Such a strategy
makes life of people healthier, happier, safer and easier
• A strategy that results in enough cash surplus to cushion
unexpected shocks and give desired ROI
• Quantum and quality of value addition by the strategy, in the
value chain, that is authentic, safe, inimitable, and renewable
resource using
• How far the path goes forward in terms of growth potential
and scope for scaling up long-term performance enhancing
potential
5.8. Norms of Strategy Making
(continued)
• Imaginative thinking on the above norms would
provide whether the path proposed to be chosen is
the correct one or the wrong one or a less potential
road. The path chosen may be any of the following:
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Marketing one product in one territory or niche market
Introducing a product mix in one territory
A product mix in two or more territories
A new product offering in an exiting territory
A new product to a new customer segment in existing
territory
• New service based offering
5.8. Norms of Strategy Making
(continued)
• Imaginative thinking on the above norms would
provide whether the path proposed to be chosen is
the correct one or the wrong one or a less potential
road. The path chosen may be any of the following:
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Backward linkage
Forward linkage
Pace change and/or scale change
Make or buy or ally
Merge, acquire, sell, exit
Summary of the topics covered in
this lecture
• First Mover Advantages
• Strategic Analysis, Strategic Options, Strategy
Choice
• Norms of Strategy making
Topics for the next lecture
• Norm of Strategy Making
• Offensive strategies and defensive strategies
• Benchmarking and Industry Standards
• Open Strategy
• Exercise