ADVANCED

STRATEGIC MANAGEMENT AND

GLOBALIZATION
Muhammad Atiq (PhD)
Business-Level Strategy

What are the bases of achieving competitive advantage in

terms of routes on the strategy clock?

How to sustain the chosen bases of achieving competitive

advantage?

What is the relationship between competition and

collaboration?
Bases of Competitive Advantage
Competitive strategy is concerned with the basis on which a

business unit might achieve competitive advantage in its

market
In a competitive situation, customers make choices on the

basis of their perception of value-for-money

The strategy clock represents different positions in a market

where customers have different requirements in terms of

value-for-money
Cost and difficulty of imitation are strategic considerations

for all strategies on the clock

The Strategy Clock
Price-based Strategies (Routes 1 and 2)

Route 1 a no-frills strategy combines a low price, low

perceived product benefits and a focus on a price-

sensitive market segment

Route 2 a low-price strategy seeks to achieve a lower

price than competitors whilst trying to maintain similar

perceived product benefits to those offered by
competitors
Price-based Strategies (Routes 1 and 2)
Price-sensitive customers may be unattractive to major

providers but offer an opportunity to others

Moreover, price-based strategies are adopted in situations

where buyers have high power and/or low switching costs

Such strategies also offer an opportunity to avoid major

competitors
Price-based Strategies (Routes 1 and 2)
However, price reduction is going to be followed by all

competitors leading to reduced margins for everyone

Low margins in turn lead to reduced resources available to

develop/innovate products
Hence, low cost in itself is not a basis for achieving

competitive advantage
Low cost can be a basis for advantage IF costs can be

reduced in ways which others cannot imitate easily

Price-based Strategies (Routes 1 and 2)
Possible ways of sustaining low cost advantage are:

achieving much greater sales volume than competitors or

cross-subsidising an SBU from elsewhere in the portfolio

Obtaining raw materials at lower prices than competitors or

undertaking production in areas where labour cost is low

Organisation specific capabilities deep rooted in the culture

and history of the organisation

Summing-up Price-based Strategies

We have adopted the strategy of flank attack. Flank attack is a

marketing strategy where those areas of the enemy are hit that
are easy to be captured. We are focusing on flank areas like
Charsadda, Parachinar, Hangu, Tal etc. They are backward and
underdeveloped areas. Such areas are mostly neglected by
MNCs, and even if they do send their representatives to such
areas, they cannot sell their medicines there because their
prices are high compared to us. Doctors in such areas need
such medicines that are of good quality but low-priced as
well. (Manager B at Bryon Pharmaceuticals, Peshawar)
The Hybrid Strategy (Route 3)
A hybrid strategy seeks simultaneously to achieve differentiation and a

price lower than that of competitors

Success depends on delivering enhanced benefits at low prices whilst

achieving sufficient margins for reinvestment in order to maintain and

develop bases of differentiation

This strategy can be advantageous when:

much greater sales volumes can be achieved than competitors

Entering a market where there are established competitors

Differentiation Strategy (Route 4)
Differentiation Strategy (Route 4)

A differentiation strategy seeks to provide product benefits

that are different from those of competitors and that are widely
valued by buyers

The aim is to achieve competitive advantage by offering better

products at the same price or enhancing margins by pricing

slightly higher
Differentiation Strategy (Route 4)
Success of this strategy is dependent on identifying critical

success factors and performing better at them in ways that

competitors cannot imitate easily

Identifying the strategic group an organisation belongs to, is

also essential for crafting a successful differentiation strategy

Differentiation Strategy (Route 4)
Difficulty of imitation is likely to come from core competencies

rather than tangible resources

By investing in intangible assets and creating switching

costs , a firm can sustain differentiation-based advantage

There should also be an emphasis on lowering the costs in

order to obtain better margins that can be reinvested in

further developing the brand
Summing-up Differentiation Strategy

We are number one in Europe and number four in Pakistan.

The majority of our products are research-based products. We

conduct large studies and enrich the data continuously. We
arrange seminars based on our studies and tell doctors the
success rates of our medicines. Therefore, our products are of
high quality and have superior efficacy. We are benefiting
society through the quality of our medicines. Society is getting
benefit in terms of high quality medicines and we are getting
benefit in the shape of increasing revenues.

(Manager C at Sanofi Pakistan)

Focused Differentiation (Route 5)
A focused differentiation strategy seeks to provide high

perceived product benefits justifying a substantial price

premium, usually to a niche

Growing a focused venture is very difficult because growth

means moving from route 5 to route 4

The above mentioned movement eventually means a lowering

of price as well as product benefits

Competition and Collaboration
Theory dictates that competitive advantage can always be achieved by

competing
In ideal conditions, kicking out the competitor out of the market will give

you competitive advantage

However, practical situation at hand in an industry may warrant inter-

organisational collaboration rather than pure competition

Inter-organisational collaboration may lead to the attainment of

competitive advantage or simply avoiding competition, thus creating

win-win scenario
Inter-organisational Collaboration

Collaboration is a process in which autonomous actors

interact through formal and informal negotiation, jointly

creating rules and structures governing their relationships
and ways to act and decide on the issues that brought
them together; it is a process involving shared norms and
mutually beneficial interactions (Thomson, 2001, p. 163)
Purposes of Inter-organisational Collaboration

Pressure Groups

Innovation/Entering New Markets

Sharing of resources

Creation of new knowledge

Reducing uncertainty

Reducing costs

Practising CSR
Strategic Directions and Corporate-Level Strategy
Analyze the choices of products and markets for an

organisation to enter or exit

Understand the role of corporate-level activities, decisions

and resources in adding value to the actual businesses

(SBUs)

Understand which businesses should corporate parents

cultivate and which should they divest

Strategic Directions and Corporate-Level Strategy

Value creation

Corporate Portfolio
parenting management

Penetration
Diversification Consolidation
Development

Scope decisions
Strategic Directions
The Ansoffs matrix provides a simple way of generating four
basic alternative directions for strategic development
Market Penetration
An organisation takes increased share of its existing markets with

its existing product range

Builds on existing strategic capabilities and is the most obvious

strategic direction

Greater market share implies increased power vis--vis buyers and

suppliers, greater economies of scale and experience curve

benefits
Market Penetration
However, market penetration may exacerbate competitive rivalry as

others defend their share (consolidation) through waging price wars

and expensive marketing battles

Acquiring weak competitors can be effective in reducing industry

rivalry but that may invite the attention of competition regulators

TOTAL-PARCO and CHEVRON Pakistan

Consolidation
Consolidation refers to a strategy by which an organisation

focuses defensively on its current markets with current

products

It involves defending market share and downsizing or

divestment in a declining market

Hence, this strategy does not involve growing the company

Product Development
refers to a strategy by which an organisation delivers modified

or new products to existing markets

Incremental and radical product innovations

Product development is expensive and high-risk activity

because of:
Acquiring new strategic capabilities

Risk of delays and increased costs due to project complexity

Product Development
Successful product development requires the achievement of three

objectives:
maximise fit with customer requirements

minimise time to entry

control development costs

The attainment of these objectives requires co-ordination among

various functions of the firm

Collaboration with customers and suppliers is also required in

order to ensure fit with customer requirements and ensure

appropriate quality raw materials at minimum costs
Market Development
Is where existing products are offered in new markets

Market development might take two forms:

New segments/New Users

New geographies

Market development strategies should be based on products

that meet the critical success factors of the new market
Simply off-loading existing products in new markets is bound
to fail
Diversification
A strategy that takes an organisation away from both its

existing markets and its existing products

Diversification is the most radical strategic direction and

increases the organisations scope

Diversification can be broadly classified as: related

diversification and unrelated diversification

Related Diversification
Corporate development beyond current products and

markets, but within the capabilities or value network of the

firm

Abbott Pharmaceuticals venture in to diagnostics

NBPs venture in to NAFA funds

Related Diversification
Related diversification can be further classified in to

vertical integration and horizontal integration

Vertical integration is backward or forward integration in to

adjacent activities in the value network

Horizontal integration is development in to activities which

are complementary to present activities

Related Diversification Options for a Manufacturer
Unrelated Diversification
Involves development of products or services beyond the

current capabilities and value network

Engro Corporation, Arif Habib Group

Singer companys venture in to manufacturing motor bikes

Such companies are often called conglomerates

Value-Adding Activities of Coporate Parents

Coaching and
Envisioning
facilitating

Providing central
services and Intervening
resources
Value-Destroying Activities of Corporate Parents

Adding management costs

Adding bureaucratic complexity

Obscuring financial performance

The Directional Policy Matrix
Also known as GE-McKinsey matrix

This portfolio matrix positions SBUs according to how attractive the

relevant market is, in which they are operating and the competitive
strength of the SBU in that market

Market attractiveness can be determined from Porters five forces

framework or market growth rate

SBUs strength can be determined from strategy canvas or market

share
The Directional Policy Matrix
Strategy Guidelines based on the Directional
Matrix
The Directional Policy Matrix
The matrix suggests that the businesses with the highest

growth potential and the greatest strength are those in which

to invest for growth

This matrix also acknowledges the difficult middle ground as

compared to BCG matrix

Managers have to be carefully selective for the SBUs that

operate in the middle ground