Makerere University

Business School
Strategic Management Course

STRATEGIC CHOICE
Need for a strategy/strategies
How do we get there?
What direction should we take?
No single strategy is the best in all
situations and at all times
Align strategic choices to the situation
Need for a consistent set of choices
Decisions and actions / tactics in order to
outwin our rivals
Without this consistent set of tactics,
synergy is lost
Strategy Selection
Selecting the best strategy that will
enable a firm achieve its goals.
Some strategy options are more
appropriate than others.
Strategists should evaluate the existing
alternatives before choosing the best
strategy
Evaluation and selection criteria
Sustainable competitive advantage
Corporate goals & objectives

Organization policies and culture

Cost of strategy failure

Feasibility of the strategy

Stakeholders reactions
The Generic Strategy Alternatives
These are the common strategic
approaches that can give a firm
sustainable competitive advantage.
There are several approaches:
Michael Porters approach
Igor Ansoffs approach
Gluecks approach
Kotlers approach
Tailor-made strategies
Michael Porters approach

Overall cost leadership

Differentiation
Focus strategy
1.Overall cost leadership:
Aim at being the lowest cost producer
relative to competitors
Increases a firms profitability
The market can enjoy affordable prices
2. Differentiation strategy

Making oneself different from others

Adding to customers perceived value of
the firm and its products
Calls for continuous innovations
(customer- centred)
How to differentiate

Image building
High quality and distinctive products
Superior customer services
Unique design and packaging
Convenient terms to customers
 3. Focus strategy
Involves segmenting the market
Focusing on a given market
segment
Calls for specialization in a
specific market segment (niche
marketing)
Why focus strategy?

Different groups of buyers with different

needs
No other rival is attempting to specialize
in the same segment
A firms resources dont allow it to spread
over the entire segment
Where some segments are more attractive
than others
ANSOFFS APPROACH

Provides four strategic approaches

based on product and market
information
Presented as a product/market matrix.
 Existing New
Products Products
Existing Strategies Strategies
Markets based on based on
existing launching
markets and new or
existing improved
products into
products existing
markets
New Strategies Strategies
based on
Markets finding new based on
launching
markets for new products
existing into new
 Existing Products-Existing Markets
1. Divestiture - It has reached maturity/you need
money for other ventures/in order to
concentrate on your core or more beneficial
business
2. Consolidation - You are enjoying a comfort
zone/need to go back to the basic (status quo)
3. Retrenchment - You have over expanded or
diversified ,you need to reduce your operating
costs; sell part of the business
4. Market penetration - Enter new markets with
a more attractive offer/buy out your close
rival through say an acquisition/use a strategic
alliance
New products-Existing markets
No or less resources needed to develop the
market
You need to develop a new product or
modify the current one for that market
A product development strategy is the best
strategy
Bench-mark this generic strategy and fine-
tune it to your competitive situation
Existing products-New markets
No or less resources needed to develop the
product
You need to develop the new market for
your product (s)
A market development strategy is needed
using say; CRM tactics/customer care
practices/taking your products (services)
near your customers
Refer to the current stage in the marketing
cycle as you fine tune this generic strategy
New product-New market
A lot of risks and uncertainties involved;
you need to develop the new product for the
new market
Minimize such risks through using a
competitive stepping stone
Commonly used strategies in such
situations include; buying franchises,
strategic alliances, and use of pilot projects
among others
GLUECKS APPROACH

Stability strategy
Expansion strategy
Retrenchment strategy
Combination
 Stability Strategies:
Strategies pursued with no or few
changes made in the firms products,
markets or functions.
Ideal for those firms that are already
consolidated in the market.
Why stabilize?
The strategy is less risky
When a firm is doing well
Executives aren't creative and
innovative
Fear to disrupt routines
Environment is relatively stable
Fear of inefficiencies due to
expansion
Expansion Strategies
Ideal where a firm wants to improve
its growth performance
A firm adds to its markets and
functions.
The firm increases the pace of its
activities
Why Expand?

To survive in a volatile environment

To provide variety to the market
Sign of good performance
Need to re-invest profits
To enjoy economies of scale
Motivates the firm
Retrenchment strategies:
A firm reduces its product lines,
abandons some market territories,
reduces its functions.
Looks like lean management
Firm reduces activities in those units
with negative or little cash flows.
The pace of operation and scope of
activities greatly reduces.
Why retrench?
The firm is performing poorly
The firm has tried all strategies and still
failed to succeed
The firm needs funds to pursue better
opportunities elsewhere
Turbulent environment
External pressure
Combination strategies:
A firm uses several of the above strategies
simultaneously to different portfolios of a
firm.
 Kotlers strategies.
Looks at market positions of competing
firms
The competitors are at war over these
competitive positions
Different competitive positions require
different competitive strategies
The positions include; market leader,
challenger, follower, and nicher positions
Market leaders strategies
Use strategies that help to expand or protect
market share
Strategy depends on the situation at hand
In internal and external environment
Apply the best science and art of war
You are the target for the challengers strategic
attacks. Those you lead also want to get where you
are and/or even overtake you;
 a) Expanding the total market
1. Acquisitions and mergers
2. Franchises and / or international trade
3. Increase usage of your products
4. Finding new users/creating new demand
b) Protecting market share
Strategies involved:
Defending your leading position and
competitive business walls
Pro-reactive protection of your weak
flanks / pre-emptive defending
Counter offensive defense
Enter new markets for future defense
Strategic withdrawal
Exhibit 17.9

Strategic Choices for Share Leaders in Growth Markets

Flanker strategy - Proactive

Flanker strategy - Reactive

Fortress
COMPETITOR Confrontation or position Contraction
OR strategy defense or strategic
POTENTIAL Proactive strategy withdrawal
COMPETITOR Reactive

LEADER

Market expansion

Source: Adapted from P. Kotler and R. Singh Achrol, Marketing Warfare in the 1980s Reprinted with permission from Journal of Business Strategy, Winter 1981,
pp. 30-41. Copyright 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market Challengers strategies
They want to overtake the share leaders BUT
should also aggressively differentiate
themselves from fellow challengers using the
following alternatives;
1. Frontal / head-on / direct attack (strengths)
2. Flanking / indirect attack ( weak points)
3. By pass/ Leapfrogging
4. Encirclement / Guerrilla attack
Note
The market leader
Is usually better in terms of resources & expertise

Is also watching your attacking activities and looking

for strategies of how to deal with your challenge

May react to swallow the attacker/challenger

To improve your market share, you need to build a

distinctive competitive advantage of your own; not
just imitating your market leader
Exhibit 17.12

Strategic Choices for Challengers in Growth Markets

Leapfrog
strategy/By Pass

Flanking
attack

Frontal
MARKET LEADER attack CHALLENGER

Encirclement strategy
Source: Adapted from P. Kotler and R. Singh Achrol, Marketing Warfare in the 1980s Reprinted with permission from Journal of Business Strategy, Winter 1981,
pp. 30-41. Copyright 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.
Market followers' strategies
Sometimes overlooked by the market
leader and challenger BUT may become
challenger and/or even overtake the
market share leader
Their commonly used strategies;
1. Cloner (making a duplicate, replica, copy)
2. Imitator
3. Adaptor
Market Followers-cont
Commonly found in oligopolistic industries
Try to compete on dimensions other than
price (avoid price competition)
Product value/quality
Customer service
Promotional effectiveness
Distribution, etc
Market nichers
Operate on high profit margins vs. high volume
Compete in well-defined market segments
(niches)
They tend to specialize in that niche in terms of
customer category, products/services,
geographical area
Successful nichers usually have a large share of
their niche
How to select a few from the many
generic/bench-market strategies
The common approaches;
1. The strategic choice matrix
2. SWOT analysis
3. Portfolio analysis
Factors determining the final
acceptance of the proposed strategy
by
1. top managements
Top managementattitude towards risk
2. Top executives preference for past
strategy in relation to past performance
3. Their values including the shared values,
chief executive's beliefs and personal
intentions
4. CEOs power relationship with other top
executives and subordinates