Development of Corporate Strategy
- A successful corporate strategy helps to provide a competitive advantage
- Effective corporate strategy development requires careful consideration of a range of internal factors and the external environment in which the business operates
- Internal factors include the human and capital resources available
- External factors include the economic and political environments
- Two strategic models used to develop a corporate strategy are Ansoff's Matrix and Porter's Strategic Matrix
Ansoff’s Matrix
- Ansoff’s Matrix is a tool for businesses with a growth objective
- It is used to identify an appropriate corporate strategy and identify the level of risk associated with the chosen strategy
- The model considers four elements, which are broken down into two categories
- The market - existing and new markets
- The product - existing and new products
Ansoff’s Strategic Matrix
- The least risky strategy to achieve growth is to pursue a strategy of market penetration
- This involves selling more products to existing customers by encouraging
- More regular use of the product
- Increased usage of the product
- Brand loyalty of customers
- This involves selling more products to existing customers by encouraging
- Market development involves finding and exploiting new market opportunities for existing products by
- Entering new markets abroad
- Repositioning the product by selling to different customer profiles (selling to other businesses as well as direct to consumers)
- Seeking complementary locations
- E.g. M&S Food has achieved significant growth since teaming up with fuel retailers such as BP and Applegreen and providing express retail outlets
- E.g. M&S Food has achieved significant growth since teaming up with fuel retailers such as BP and Applegreen and providing express retail outlets
- Product Development involves selling new or improved products to existing customers by
- Developing new versions or upgrades of existing successful products
- Redesigning packaging and aesthetic features
- Relaunching heritage products at commercially convenient intervals
- E.g. Cadbury relaunches Christmas-themed products each year, often with a subtle design change, to recapture the interest of customers
- E.g. Cadbury relaunches Christmas-themed products each year, often with a subtle design change, to recapture the interest of customers
- Diversification is the most risky growth strategy as it involves targeting new customers with entirely new or redeveloped products
- Examples of diversification include
- Tesco launching a range of financial products including current accounts and credit cards
- Greggs launching a range of themed clothing products
- Examples of diversification include
Porter’s Generic Strategic Matrix
- Porter’s Generic Strategic Matrix identifies a range of strategies a business might adopt considering
- Its source of competitive advantage (cost or differentiation)
- The scope of the market in which it operates (mass or niche)
- Porter argues that failing to adopt one of these strategies risks a business being ‘stuck in the middle and unable to compete successfully with rivals in the market
Porter’s Generic Strategic Matrix
- Businesses operating in the mass market should adopt either a cost leadership or a differentiation strategy, depending on what it is that makes them stand out from their competitors
- Businesses that have a significant cost advantage over competitors should exploit this as much as possible to achieve success - this is called cost leadership
- Businesses that are unable to operate as the most competitive on cost should adopt a strategy of differentiation
- A business that operates in a niche market should adopt a focus strategy that closely meets the needs of its specific group of customers
- A cost focus involves being the lowest cost competitor within the market niche
- A differentiation focus involves offering specialised products within the niche market