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Business Strategy

A business strategy is the process that identifies the product market, the level of investment, the functional area strategies needed to compete in the selected product market and the strategic assets that underlie the strategy and provide the sustainable competitive advantage (SCA).

In the Multiple Businesses business strategy may include the development of synergistic effects across the businesses—the creation of value by having business units that support and com­plement each other and the allocation of resources over the business units.

Differentiation versus Low-Cost Strategies

A differentiation strategy is one in which the product offering is differentiated from the competition by providing value to the customer, perhaps by enhancing the performance, quality, prestige, features, service backup, reliability, or con­venience of the product.

A low-cost strategy is based on achieving a sustainable cost advan­tage in some important element of the product or service.

I think the differentiation strategy is more efficient in the high sector of the society and it loses its efficient by moving down to reach the low sector.

But the low cost strategy is more efficient in the low sector of the society and it loses its efficient by moving up to reach the high sector.

Focus strategy

It is involves focusing the business on either a relatively small buyer group or a restricted portion of the product line.

Preemptive move

You take "first-mover advantages", so competitors must be inhibited or prevented from duplicating or countering it

Synergy

It is linked to another business within the same firm or division. The two businesses may be able to share a sales force, office, or warehouse and thus reduce costs or investment.

A STRATEGIC BUSINESS UNIT

SBU is any organizational unit that has a defined business strategy and a manager with sales and profit responsibility. The concept was formulated by firms as a way to help develop an entrepreneurial thrust in a diversified firm by making business units more autonomous and strategy development less centralized.

Strategic Market Management

Process of developing and implementing strategies:

·        Budgeting: The basic assumption is that the past will repeat itself.

·        Long-Range Planning: Past trends will continue

·        Strategic Planning: New trends and discontinuities are predictable

·        Strategic Market Management: Planning cycles are inadequate to deal with rapid changes

Now we are going to talk about the strategic market management which contains several distinct characteristics and trends.

External, Market Orientation

Organizations need to be oriented externally—toward customers, competitors, the market, and the market's environment.

Proactive Strategies

A proactive strategy attempts to influence events in the environment rather than simply react to environmental forces as they occur

Importance of the Information System

The determination of what information is needed, how it can be obtained efficiently and effectively, and how it should best be analyzed, processed, and stored can be 1cey to an effective strategy development process.

On-Line Analysis and Decision Making

It is the system must be structured enough to provide assistance in an inherently complex decision context, sensitive enough to detect the need to precipitate a strategic choice, and flexible enough to be applied in a variety of situations.

Entrepreneurial Thrust

There is a need for the development of organizational forms and strategic market management support systems that allow the firm to be responsive to opportunities

Implementation

Implementation of strategy is critical. There needs to be concern about whether the strategy fits the organization—its structure, systems, people, and culture—or whether the organization can be changed to make the strategy fit

Global Realities

Global markets are ex­tremely relevant to many businesses, and it is a rare firm that is not affected by competitors either based in or with operations in other countries.

Marketing

Marketing is by its very nature concerned with the interaction between the firm and the marketplace. 

Tools and concepts such as product positioning, the product life cycle, brand equity, brand loyalty, and customer-need analysis all have the potential to improve strategic decision making.

Organizational Behavior

It is the link between strategy and other elements of the organization, such as systems and the management of people.

Finance and Accounting

It is a rich research tradition relating to diversification efforts, acquisitions, and mergers.

Finance has also con­tributed to an understanding of the concept of risk and its management.

Economics

The concept of transaction costs has been developed and applied to the issue of vertical integration. Economists have contributed to the experience curve concept, which has considerable strategic implications.

Brand Positioning

Define competitive frame of reference

Target market

Nature of competition

Define desired brand knowledge structures

Points-of-parity: necessary - competitive

Points-of-difference: strong, favorable, and unique brand associations

Issues in Implementing Brand Positioning

•         Establishing Category Membership

Product descriptor

Exemplar comparisons

•         Identifying & Choosing POP’s & POD’s

    Desirability criteria (consumer perspective)

  Personally relevant

  Distinctive & superior

  Believable & credible

         Deliverability criteria (firm perspective)

  Feasible

  Profitable

  Pre-emptive, defensible & difficult to attack

•         Communicating & Establishing POP’s & POD’s

Create POP’s and POD’s in the face of attribute & benefit trade-offs

  Price & quality

  Convenience & quality

  Taste & low calories

  Efficacy & mildness

  Power & safety

  Ubiquity & prestige

  Comprehensiveness (variety) & simplicity

  Strength & refinement

•         Sustaining & Evolving POD’s & POP’s

Core Brand Values:

  Set of abstract concepts or phrases that characterize the 5-10 most important                 dimensions of the mental map of a brand.

  Relate to points-of-parity and points-of-difference

  Mental Map à Core Brand Values à Brand Mantra

Brand Mantras:

  A brand mantra is an articulation of the “heart and soul” of the brand.  Brand       mantras are short three to five word phrases that capture the irrefutable essence   or spirit of the brand positioning and brand values. 

  Nike: Authentic Athletic Performance

  Disney: Fun Family Entertainment

STRATEGIC BRAND MANAGEMENT

What is a Brand? A brand is a name, term, sign, symbol, or design which is intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.

The Concept of Brand Equity stresses the importance of the brand in marketing strategies. Brand equity is defined in terms of the marketing effects uniquely attributable to the brand.

Brand equity relates to the fact that different outcomes result in the marketing of a product or service because of its brand name, as compared to if the same product or service did not have that name.

The Key to Branding: For branding strategies to be successful, consumers must be convinced that there are meaningful differences among brands in the product or service category. Consumer must not think that all brands in the category are the same.

PERCEPTION = VALUE

Strategic brand management involves the design and implementation of marketing programs and activities to build, measure, and manage brand equity.  The strategic brand management process is defined as involving four main steps:

            1)  Identifying and establishing brand positioning and values

            2)  Planning and implementing brand marketing programs

            3)  Measuring and interpreting brand performance

            4)  Growing and sustaining brand equity

Strategic Brand Management Process

WHY STRATEGIC MARKET MANAGEMENT?

Strategic market management is often frustrating because the environment is so difficult to understand and predict. The communication and choices required within the organization can create strain and internal resistance. The most valuable organizational resource, management time, is absorbed. The alternative of simply waiting for and reacting to exceptional opportunities often seems efficient and adequate.

Despite these costs and problems, however, strategic market management has the potential to

* Precipitate the consideration of strategic choices. What is happening externally that is creating opportunities and threats to which a timely and appropriate reaction should be generated? What strategic issues face the firm?

What strategic options should be considered? The alternative to strategic market management is usually to drift strategically, becoming absorbed in day-to-day problems. Nothing is more tragic than an organization that fails because a strategic decision was not addressed until it was too late.

* Force a long-range view. The pressures to manage with a short-term focus are strong and frequently lead to strategic errors.

* Make visible the resource allocation decision. Allowing allocation of resources to be dictated by the accounting system, political strengths, or inertia (the same as last year) is too easy. One result of this approach is that the small but promising business with "no problems" or the unborn business may suffer from a lack of resources, whereas the larger business areas with "problems" may absorb an excessive amount.

* Aid strategic analysis and decision making. Concepts, models, and methodologies are available to help a business collect and analyze information and address difficult strategic decisions.

* Provide a strategic management and control system. The focus on assets and competencies and the development of objectives and programs associated with strategic thrusts provide the basis for managing a business strategically.

* Provide both horizontal and vertical communication and coordination systems. Strategic market management provides a way to communicate problems and proposed strategies within an organization; in particular, its vocabulary adds precision.

* Help a business cope with change. If a particular environment is extremely stable and the sales patterns are satisfactory, there may be little need for meaningful strategic change—either in direction or intensity. In that case, strategic market management is much less crucial. However, most organizations now exist in rapidly changing and increasingly unpredictable environments and therefore need approaches for coping strategically.
    George Yip studied strategy development in 13 firms and concluded that strategic market management approaches have particular value for businesses that:

* Need multinational strategies; one marketing-oriented firm used them to provide a strategic role for functions other than marketing.

* Need to achieve synergy among multiple markets.

* Need to coordinate the strategies of multiple brands.
* Are involved in complex markets where multiple or layered channels, regional variations, or multiple elements of the marketing mix are involved.

STRATEGIC MARKET MANAGEMENT - CHARACTERISTICS AND TRENDS:

Several distinct characteristics and trends have emerged in the strategy field, some of which have already been mentioned. A review of these thrusts or trends will provide additional insight into strategic market management and into the perspective and orientation of the balance of the book.

External, Market Orientation

As already noted, organizations need to be oriented externally—toward customers, competitors, the market, and the market's environment. In sharp contrast to the projection-based, internally oriented, long-range planning systems, the goal is to develop market-driven strategies that are sensitive to the customer.

Proactive Strategies

A proactive strategy attempts to influence events in the environment rather than simply react to environmental forces as they occur. A proactive strategy is important for at least two reasons. First, one way to be sure of detecting and quickly reacting to major environmental changes is to participate in their creation. Second, because environmental changes can be significant, it may be important to be able to influence them. For example, it may be beneficial for an insurance firm to be involved in tort reform strategy.

Importance of the Information System

An external orientation puts demands on the supporting information system. The determination of what information is needed, how it can be obtained efficiently and effectively, and how it should best be analyzed, processed, and stored can be 1cey to an effective strategy development process.

On-Line Analysis and Decision Making

Organizations are moving away from relying only on the annual planning cycle and toward a more continuous, on-line system of information gathering, analysis, and strategic decision making. The design of such a system is demanding and requires new methods and concepts. The system must be structured enough to provide assistance in an inherently complex decision context, sensitive enough to detect the need to precipitate a strategic choice, and flexible enough to be applied in a variety of situations.

Entrepreneurial Thrust

The importance of developing and maintaining an entrepreneurial thrust is increasingly being recognized. There is a need for the development of organizational forms and strategic market management support systems that allow the firm to be responsive to opportunities. The entrepreneurial skill is particularly important to large, diversified firms and to firms involved in extremely fast-moving industries, such as high-tech firms or industries that produce "hit" products such as video games, CDs, or movies. The strategy in such contexts must include providing an environment in which entrepreneurs can flourish.

Implementation

Implementation of strategy is critical. There needs to be concern about whether the strategy fits the organization—its structure, systems, people, and culture—or whether the organization can be changed to make the strategy fit. The strategy needs to be linked to the functional area policies and the operating plan. Chapter 15 is devoted to implementation issues.

Global Realities

Increasingly, the global dimension is affecting strategy. Global markets are extremely relevant to many businesses, from Boeing to McDonald's, and it is a rare firm that is not affected by competitors either based in or with operations in other countries. The global element represents both direct and indirect opportunities and threats. The financial difficulty of a major country or a worldwide shortage of some raw material may have a dramatic impact on an organization's strategy. Chapter 14 focuses on global strategies.

Longer Time Horizon

A major problem for many businesses is the development of effective long-term objectives and strategies. Many observers have suggested that the visible success of Japanese firms is due, in part, to their ability to operate strategically with long time horizons. Furthermore, some of the competitive problems of such industries as the automobile, consumer electronics, and steel industries have been attributed by management theorists to a short-term orientation. As managing with respect to a longer time horizon is more difficult and places heavier demands on the strategic decision-making process, there is an increased need for better constructs and methods that reflect a long-term perspective.

Empirical Research

Historically, the field of strategy has been dominated by conceptual contributions based on personal experience and insights, as the writings of Alfred Sloan, the architect of General Motors, and Peter Drucker, the author of the classic book, The Practice of Management, illustrate.⁶ More recently, an empirical research tradition has begun. The qualitative case-study approach provides useful hypotheses and insights. In addition, a host of quantitative research streams compare and study the performance and characteristics of samples of business units over time. These research streams can now be found in most of the basic disciplines and in the field of strategy itself. They are an important indication that the field is finally reaching a maturity in which theories can be, and are being, subjected to scientific testing.

Interdisciplinary Developments

One purpose of this book is to draw on and integrate a variety of disciplines that are making important conceptual and methodological contributions to strategic market management. Among these disciplines, which have been remarkably isolated from strategic market management and each other, are the following:

Marketing

Marketing is by its very nature concerned with the interaction between the firm and the marketplace. During the last decade, strategic decisions have received increasing attention. Tools and concepts such as product positioning, the product life cycle, brand equity, brand loyalty, and customer-need analysis all have the potential to improve strategic decision making.

Organizational Behavior

Organizational behavior theorists have built on the classic works of the early 1960s on strategy and organizational structure. They have also considered the link between strategy and other elements of the organization, such as systems and the management of people. Of particular relevance is the concept of corporate culture and its impact on strategy.

Finance and Accounting

One major contribution of these disciplines to strategy is shareholder value analysis (covered in Chapter 7)—the concept that strategists should be concerned with the impact of strategy on the value of the firm. Another is a rich research tradition relating to diversification efforts, acquisitions, and mergers, Finance has also contributed to an understanding of the concept of risk and its management.

Economics

The industrial organization theory subarea of economics has been applied to strategy using concepts and methods such as industry structure, exit barriers, entry barriers, and strategic groups. Furthermore, the concept of transaction costs has been developed and applied to the issue of vertical integration. Finally economists have contributed to the experience curve concept, which has considerable strategic implications.

Strategy

The discipline of strategy is not only increasingly overlapping with other disciplines, but is itself maturing. One sign of this maturity is the emergence of quantitative research streams; another is the maturity of some of its tools and techniques. In addition, the premier strategy journal, Strategic Management Journal, has given exposure for more than two decades to the top academic efforts that provide theoretical and empirical insights into strategy.

Strategic Market Management

Strategic market management, or, simply, strategic management, is motivated by the assumption that the planning cycle is inadequate to deal with the rapid rate of change that can occur in a firm's external environment. To cope with strategic surprises and fast-developing threats and opportunities, strategic decisions need to be precipitated and made outside the planning cycle.

Recognition of the demands of a rapidly changing environment has stimulated the development or increased use of methods systems, and options that are responsive. In particular, it suggests a need for continuous, real-time information systems rather than, or in addition to, periodic analysis. More sensitive environmental scanning, the identification and continuous monitoring of information-need areas, efforts to develop strategic flexibility, and the enhancement of the entrepreneurial thrust of the organization may be helpful. An information-need area is an area of uncertainty that will affect strategy, such as an emerging consumer-interest area. Strategic flexibility involves strategic options that allow quick and appropriate responses to sudden changes in the environment.

Strategic market management is proactive and future oriented. Rather than simply accepting the environment as given, with the strategic role confined to adaptation and reaction, strategy may be proactive, effecting environmental change. Thus, governmental policies, customer needs, and technological developments can be influenced—and perhaps even controlled—with creative, active strategies.

Gary Hamel and C. K. Prahalad argue that managers should have a clear and shared understanding of how their industry may be different in 10 years and a strategy for competing in that world. They challenge managers to evaluate the extent to which

* Management has a distinctive and farsighted view, rather than a conventional and reactive view, about the future.

* Senior management focuses on regenerating core strategies rather than on reengineering core processes.

* Competitors view the company as a rule maker rather than a rule follower.

* The company's strength is in innovation and growth rather than in operational efficiency.

* The company is mostly out in front rather than catching up.

In that spirit, strategic market management actually includes all four management systems: the budgeting system, the projection-based approach of long-range planning, the elements of strategic planning, and the refinements needed to adapt strategic decision making to real time. In strategic market management, a periodic planning process is normally supplemented by techniques that allow the organization to be strategically responsive outside the planning process.

The inclusion of the term market in the phrase "strategic management" emphasizes that strategy development needs to be driven by the market and its environment rather than by an internal orientation. It also points out that the process should be proactive rather than reactive and that the task should be to try to influence the environment as well as respond to it.