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The Scope of Strategic Choice - Coggle Diagram
The Scope of Strategic Choice
Every aspect of strategy leads to the need for strategic choice
Rational strategy requires identification of an optimal route to the perceived future
The concept of emergent strategy suggests that choices and alternatives will continuously appear as the organisation develops
Changes in the external environment may require choices to be made to allow the organisation to adapt
The capabilities and competencies of the organisation and its people will expand or restrict our choices
The culture and governance of the organisation will provide the framework for different options
The ethical approach of the organisation and its individuals will hep to focus our decisions
Johnson (2017) suggests that there are three predominant areas of strategic choice an organisation needs to consider
Business strategy
determines how an organisation has positioned itself in relation to its competitors
Strategic direction
determines the products, industries and market sectors that the organisation intends to operate within
Strategy methods
determine whether the organisation is acting in isolation or seeking some form of strategic alliance with one or more different but aligned organisations
A whole business approach
The concept of the development of strategy suggests that we wish to drive the business forward rather than leaving it without clear and focused goals
To achieve the necessary understanding of the organisation as it stands now in alignment with its future (strategic) potential will require a range of research and development acitivites
Research:
A systematic investigation into materials and sources in order to establish facts and reach new conclusions
Development:
An event constituting a new stage in a changing situation
The development of strategy requires both activities to have been carried out to ensure that we are making informed choices
The nature of any successful business is that it will exist within a competitive environment, even charities and third-sector organisations are in competition with each other to attract funding from within a finite pool of finance
Appropriate research into the competitive environment within which we operate will allow us to challenge the internal drivers within our own organisation and will ensure that we are viewing the organisation within the context of the markets that are available for our products or services and the position of other players within those markets
To succeed in a world of competition, it is necessary for an organisation to recognise how it can obtain competitive advantage - the means through which it creates value for its shareholders or stakeholders - this requires research into the competition to help to drive the development of the required changes within the organisation, to facilitate effective and efficient change to enable it to meet its planned objectives and goals and to make it fit and agile for the future
Strategic direction
A central strategic choice that needs to be made by every organisation is the direction in which it sees its future development and growth, there are only two variables to manipulate - products/services and customers
Ansoff (1988)
captured this concept
Market penetration
Suggests growth through the increase of the market share of the current product and market mix
Builds upon current strategic capabilities and is probably the most risk averse of the strategic directions that could be followed
Existing markets / existing products/services
The two core forces that may restrict this type of perceived growth are
Retaliation from competitors (wanting to capture a share of a proven successful market)
Legal restriction based around an acceptable concentration of market power. In the UK the Competition and Markets Authority has the right to challenge, prevent or restrict any perceived monopolistic dominance
Product development
Existing markets/new products/services
Suggests using the knowledge of the existing customer base and markets to provide different, evolved or complementary products or services
Market development
New markets/existing products/services
Suggests that there is an opportunity to take existing products or services into new markets
Would require significant pre-emptive market and consumer research and possibly some product development to tailor the existing product to the particular expectations of the new market
Diversification
New products/new markets
The highest risk option, requiring significant research and market intelligence in terms of both aspects of development
This type of diversification will often be narrowed through the recognition of opprotunity
Horizontal diversification
Takes place when an organisation sees the opportunity to develop a new or variant product and market it to the customers of its competitors
Eg, other brands began to produce tablet style devices
Vertical diversification
Takes place when an organisation sees the opportunity to acquire either a new supplier or a new customer and therefore broaden its overall offering
Concentric diversifcation
Takes place when an ostensibly new product (in reality closely related to a current product is introduced by an organisation
Eg Pepsi broadened its product line to fast food franchises and snack foods
Conglomerate diversification
Describes the situation where completely new and unrelated products are introduced by an organisation wishing to take advantage of its existing name and reputation
Eg Virgin Group
Business level strategy
Business level strategy describes the development of strategy and the choices that take place within a defined business unit
This might be one individual business where one board of directors has responsibility for the governance of that single business
Might be one business within a much larger group of businesses
It is important for decision makers, those making the strategic choices, to recognise the boundary or parameter of the area of business that will be affected by their decisions
Strategic business units
As an organisation increases in size, there is a need to recognise that some areas of the organisaton will have a close synergy with other business units
SBU:
A fully functional unit of a business with its own vision and direction, operating as a separate unit but often still reliant upon the organisational centre for its ultimate direction
It is common for an SBU to have its own support infrastructure such as HR, training and finance
It is likely to have its own specific policies and procedures but there may be some more generic ones relevant to the organisation as a whole (for example, an ethics code of practice)
The purpose of creating SBUs within a large organisation is to allow focused and aligned strategy and agility to react quickly in decision making within a changing external environment