Professor George BurtDr Tom ForbesDr John W SandersLecture 8 – Strategic option generationStrategy for Sustainable Success (BUAP012)Strategy and Competitive Advantage (BUSP010)International Strategy (IBUP010)Agenda• Review of strategic analysis to date• The search for competitive advantage – Peteraf• Developing future strategic intent• Identification of opportunities, challenges, risks – coherencein strategic analysis• Developing optional responses• Team task• Link to next lectureEvaluating strategic options: methods and criteriaBuilding the logic and structure of your argument to support adaptationor transformation or innovationPeteraf’stheory ofSustainableCompetitiveAdvantage HeterogeneityRents obtainedfrom resource orcompetencydifferences Ex-post limitsto competitionImperfectmobilityEx-ante limitsto competitionRents capturedby the firm ratherthan “stars”Rents sustainedby “isolatingmechanisms” (ongoing)Rents not offsetby buildingprotectioncosts (outset)CompetitiveadvantagePeteraf, M. A. (1993) ‘The Cornerstones of Competitive Advantage: AResource-Based View’, Strategic Management Journal, 14: pp.179-191.Developing future strategic intent• What insights are emerging from the analysis?• Can you see patterns emerging?• Can you identify the drivers of change?• Can you see some new basis of competition?• What is/are the key insight/s?• Have you already begun to think about “what to do” ?Note the difference• Consolidation• Product / market development• Horizontal integration• Vertical integration• Related diversification• Unrelated(ENDS)• Internal• External (acquisition)• Co-operation• Joint ventures• Outsourcing• Divestment(MEANS)and overlap of business and corporate levels.Strategy Directions: Methods to achieve Strategy:Establish your starting pointWhat are the key strategic issues that you areseeking to address / resolve / provide support for ?Establish your starting point• The search for opportunities and the response to threats, using:• Scenarios– Change in customer value system;– Drivers of change– Change in bases of competition• Market segmentation• Strategic group analysis• Porter’s 5 Forces analysis• Portfolio analysis• SWOT / TOWS analysis• Rent model and ‘upframing’ the business idea• Others ….Hygiene factorsHygiene factors can be considered under twocategories:• maintaining sound and efficient relationships withall stakeholders• ensuring sound and efficient business processes1. Using your scenario analysis2. TOWS matrix3. Upframing the Business Idea4. Extending Ansoff’s matrix5. Blue Ocean strategySteps in strategic option generation• Identify as many options as you can. Write on Post-its• Consider the case scenarios.• Consider the most important stakeholders, and possible invaders.Options ?• Consider the implications for your competitors and suppliers. Anyideas for options ?• Look at the business Idea. What customer/market values couldchange ?• What BI strengths can be further exploited, what weaknessesrectified ?• Any other options ?• Cluster into potential strategies/strategic thrusts, and name thestrategies/strategic thrusts.Steps in strategic option generation (1)Issue / Option matching matrixStep 1: List issues IssueOptionDiscussionIssue 1Issue 2Issue 3Issue 4Issue “n” Issue / Option Matching MatrixStep 2: Elaborate options IssueOptionDiscussionIssue 1 Blahblah blahDevelop capability ….Responding to ….Issue 2Issue 3Issue 4Issue “n” The TOWS matrix (2) Internal factorsExternal factorsStrengths (S)S1, S2, S3 …Weaknesses (W)Opportunities (O)O1, O2, O3 …SO Strategic OptionsGenerate options here that usestrengths to take advantage ofopportunitiesS2 O3WO Strategic OptionsGenerate options here that takeadvantage of opportunities byovercoming weaknessesO1Threats (T)ST Strategic optionsGenerate options here that usestrengths to avoid threatsWT Strategic OptionsGenerate options here thatminimise weaknesses and avoidthreats Some TOWS examples• SO Strategies … use our excellent distribution capabilitiesto sell other, related products in rapidly expanding markets… implies developing strategic alliances or acquisition(s)• WO Strategies … adapt our product for the new andexpanding “disposable” markets where long term reliabilityis less of an issue … thus overcoming quality shortcomings• ST Strategies … use our healthy cash reserves and initiatea price war to eliminate newer rivals in our markets• WT Strategies … sell off our weakest division to reduceoverall debt and ward off the threat of a take-over‘Upframing’ the business idea (3)Organising question:• How does our activity create value for our customers?• What does it contribute to their lives, goals and processes?‘Upframing’ – Option generation• Who is the customer?• Who is the customer’s customer?• How can we enhance the customer’s customer’slife goals?• How can we enhance the customer’s business?Understanding the customer’svalue perspectiveSupplier CustomerCustomer’scustomer # 1Customer’scustomer # 2Customer’scustomer # 3Cost ValueValueValue‘Upframing’ the business idea (example)• Clothing … becomes … Identity (e.g. Benetton)• The “Document” company (e.g. Xerox)• BUT NOT• Banking … becomes … Financial services• Oil … becomes … Energy• Why Not?Richard Normann (2001)Reframing Business: When the map changes the landscape•What are the current boundaries of the firm?• Horizontal scope• Vertical scope•How might these be re-configured?• Horizontal scope• Acquisitions/divestments• Alternative forms of cooperation (networks, standards, joint ventures, partnerships)• Vertical scope• Porters 5 Forces analysis (suppliers; buyers)• Value chain/Supply chain analysis (Porter)• Transaction Cost EconomicsRe-thinking the boundariesCOMPETENCEPRODUCTSExisting NewMARKETSExistingAPROTECT/BUILD Withdrawal Consolidation Market penetrationBPRODUCTDEVELOPMENT On existing competences With new competencesNewCMARKETDEVELOPMENT New segments New territories New usesDDIVERSIFICATION On existing competences With new competencesDEVELOPMENT(Extended)Ansoff’s matrix (4)Dominant Business Strategy Assumptions (5)• Industry Sector is Well Defined• Competitors and Rivals are Known• Competitive advantage through:– Better Strategic Focus– Better Use of Scarce Resources, Core Competencies, Location,Connections, etc.– Cultivating Brand / Image / Loyalty,– Improving Efficiency through Value-chain Analysis, Productivity,Processes etc• Emphasis on ‘Beating the Competition’ (Zero-Sum Game)A RED OCEAN STRATEGY – BLOODY!!!From Red Ocean to Blue Ocean StrategyRed Ocean Strategy• Focus on rivals in industry• Compete in existing market space• Emphasises competitive positioning• Exploit existing demandBlue Ocean Strategy• Look across to other industries• Create uncontested market space• Make competition irrelevant• Create new demandsCreating BLUE OCEANS of Uncontested MarketSpaces• Value Innovation / Demand creation (‘Post-It’ notes,Power Caddies)• Industries Not Yet in existence (Pilkington Glass,PC)• Untapped markets / Uncharted territory (CallawayGolf, Nike Goddess)• Competition is Irrelevant / Does not exist yetEliminate-Reduce-Raise-Create Grid EliminateWhich factors offeredby industry can beeliminated?RaiseWhich factors shouldbe raised well aboveindustry standard?ReduceWhich factors can bereduced belowindustry standards?CreateWhich factors should becreated that the industrynever offered? Eliminate-Reduce-Raise-Create Grid EliminateStar PerformersAnimal ShowsAisle Concession SalesMultiple Show ArenasRaiseUniqueness of VenueReduceFun and HumourThrill and DangerCirque Du SoleilCreateThemes/StoriesRefined EnvironmentMultiple ProductionsArtistic Music and Dance Eliminate-Reduce-Raise-Create Grid EliminateTicketsIn-flight servicesSeat allocationRaiseConvenience of travel:hop on/hop offReduceFaresBudget AirlinesCreatePerception of easyaccess to the region Eliminate-Reduce-Raise-Create Grid Eliminatemall formidable clubheadsRaiseSize of ‘SweetSpot’ReduceEntry-skill levelrequired to play thegameCallaway Big BerthaCreateGolf as a sport for theMasses Team task 8• Undertake and complete activities – options you alreadyhave identified and options generated using today’sapproaches and examples.• Develop a short summary in the form of working notes forthe final report.
