Description
Strategies in game theory may be random (mixed) or deterministic (pure). Pure strategies can be thought of as a special case of mixed strategies, in which only probabilities 0 or 1 are assigned to actions.
Ansoff's Matrix - Planning for Growth.
This well known marketing tool was first published in the Harvard Business Review (1957) in an article called 'Strategies for Diversification'. It is used by marketers who have objectives for growth. Ansoff's matrix offers strategic choices to achieve the objectives. There are four main categories for selection.
Ansoff's Product/Market Matrix
Market Penetration
Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.
Market Development
Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.
Product Development
This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.
Diversification
This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business. Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for growth.
The Boston Matrix
Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.
The Boston Consulting Group's Product Portfolio Matrix
This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows.
Dogs.
These are products with a low share of a low growth market. These are the canine version of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid of these products.
Cash Cows.
These are products with a high share of a slow growth market. Cash Cows generate more more than is invested in them. So keep them in your portfolio of products for the time being.
Problem Children.
These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.
Stars.
These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars. Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows is used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures.
Problems with The Boston Matrix.
•
• • •
There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product. There is another assumption that SBUs will cooperate. This is not always the case. The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.
Gap Analysis.
Gap analysis is a very useful tool for helping marketing managers to decide upon marketing strategies and tactics. Again, the simple tools are the most effective. There's a straightforward structure to follow. The first step is to decide upon how you are going to judge the gap over time. For example, by market share, by profit, by sales and so on. This will help you to write SMART objectives. Then you simply ask two questions - where are we now? and where do we want to be? The difference between the two is the GAP - this is how you are going to get there. Take a look at the diagram below. The lower line is where you'll be if you do nothing. The upper line is where you want to be.
What is Gap Analysis?
Your next step is to close the gap. Firstly decide whether you view from a strategic or an operational/tactical perspective. If you are writing strategy, you will go on to write tactics - see the lesson on marketing plans. The diagram below uses Ansoff's matrix to bridge the gap using strategies:
Strategic Gap Analysis.
You can close the gap by using tactical approaches. The marketing mix is ideal for this. So effectively, you modify the mix so that you get to where you want to be. That is to say you change price, or promotion to move from where you are today (or in fact any or all of the elements of the marketing mix).
Tactical Gap Analysis.
This is how you close the gap by deciding upon strategies and tactics - and that's gap analysis.
Bowman's Strategy Clock
The 'Strategy Clock' is based upon the work of Cliff Bowman (see C. Bowman and D. Faulkner 'Competitve and Corporate Strategy - Irwin - 1996). It's another suitable way to analyze a company's competitive position in comparison to the offerings of competitors. As with Porter's Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. There a six core strategic options:
The Strategy Clock: Bowman's Competitive Strategy Options
Option one - low price/low added value.
•
likely to be segment specific.
Option two - low price.
•
risk of price war and low margins/need to be a 'cost leader'.
Option three - Hybrid.
•
low cost base and reinvestment in low price and differentiation.
Option four - Differentiation.
(a)without a price premium:
•
perceived added value by user, yielding market share benefits.
(b)with a price premium:
•
perceived added value sufficient to to bear price premium.
Option five - focussed differentiation.
•
perceived added value to a 'particular segment' warranting a premium price.
Option six - increased price/standard.
•
higher margins if competitors do not value follow/risk of losing market share.
Option seven - increased price/low values.
•
only feasible in a monopoly situation.
Option eight - low value/standard price.
•
loss of market share.
Generic Strategies - Michael Porter (1980)
Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment: Sources of competitive advantage - are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market - does the company target a wide market, or does it focus on a very narrow, niche market?
The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.
1. Cost Leadership.
The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. 'cost advantage' is the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.
2. Differentiation
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service. The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.
3. Focus or Niche strategy.
The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.
The danger of being 'stuck in the middle.'
Make sure that you select one generic strategy. It is argued that if you select one or more approaches, and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage.
Value Chain Analysis.
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'
Lesson- Value Chain Analysis.
Primary Activities.
Inbound Logistics.
Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.
Operations.
This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.
Outbound Logistics.
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.
Marketing and Sales.
In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
Service.
This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.
Support Activities.
Procurement.
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).
Technology Development.
Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Human Resource Management (HRM).
Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.
Firm Infrastructure.
This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
Balanced Scorecard - Lesson.
The Balanced Scorecard is an approach that can be used by strategic marketing managers to control, and keep track of, key performance indicators. In fact the scorecard itself is designed to be wholly strategic since it contains long-term outcomes and drivers of success. There are four zones in a balanced scorecard namely financial, customers, business processes (or simply processes), and learning and growth. Each measure is part of a longer chain of cause and effect, and all of the measures eventually lead to outcomes (read on and this will become clearer). So the scorecard is 'balanced' in that outcomes are in balance with each other. The benefit of the scorecard is that is overcomes short-term quick fixes, and gives the strategic marketing manager a straightforward overview of the organisation. In fact, a scorecard should ideally fit onto a single sheet of paper. In fact Kaplan and Norton (1992), the originators of Balanced Scorecard, describe it as the dials in an airplane cockpit.
Learning and Growth.
Learning and Growth deals with measures of corporate success in relation to how it learns as it develops over time. So if the company makes mistakes in any way, then it must learn from them and there must be mechanisms in place to make sure that happens. Growth also includes the way in which it
generates leaders for the future and equips employees with the necessary skills that will ultimately sustain its business. Examples include skills sets, employee relations and satisfaction, and staff competences.
Internal Business Processes.
Internal business processes include all operations within the organisation. The measures would cover whether or not value is being delivered to target segments, and the value chain is tracked. Innovation and new product development would also be measured. Examples of internal business processes include Information Technology, manufacturing, marketing operations such as customer service, procurement and quality processes.
Customers.
As marketers we are very concerned with our customers. We need to make sure that they are satisfied with every aspect of their experience with our organisation. We need to make sure that we not only recruit more new customers, but that we also retain them and extend new products and services to them. We also need to make sure that we are meeting the needs of our target segments. So here, examples of customer measures include customer retention and recruitment, their satisfaction and so on.
Financial.
Financial measures are vitally important for any business. A note of caution here, since traditional measures of financial success such as Return On Investment (ROI), and made secondary to 'shareholder value.' Shareholder value is the natural measure of success, and so it is prioritised. Information on customers, markets and technology is far more widely available today, so don't bogged down with old fashioned financial measures. Resources, individuals and teams within a business are then aligned with the scorecard objectives, measures, targets and initiatives for each of the four areas of measurement
The General Electric Business Screen
The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cashflow if often a more reliable indicator of position as opposed to market growth/share. The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitutes competitive position for the original's market share.
GE Business Screen Matrix
So in come Strategic Business Units (SBU's). A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies. Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria: For market attractiveness:
• • • • • •
Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact.
. . . and for competitive position:
• • • • • • • •
Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction.
At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps:
• • • • •
One - Identify your products, brands, experiences, solutions, or SBU's. Two - Answer the question, What makes this market so attractive? Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness.
Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include:
• • • • • •
There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it.
Shell Directional Policy Matrix
The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company's competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions. However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.
A Nine Celled directional Policy Matrix
Each of the zones is described as follows:
• • • • • • • •
Leader - major resources are focused upon the SBU. Try harder - could be vulnerable over a longer period of time, but fine for now. Double or quit - gamble on potential major SBU's for the future. Growth - grow the market by focusing just enough resources here. Custodial - just like a cash cow, milk it and do not commit any more resources. Cash Generator - Even more like a cash cow, milk here for expansion elsewhere. Phased withdrawal - move cash to SBU's with greater potential. Divest - liquidate or move these assets on a fast as you can.
doc_798113530.pdf
Strategies in game theory may be random (mixed) or deterministic (pure). Pure strategies can be thought of as a special case of mixed strategies, in which only probabilities 0 or 1 are assigned to actions.
Ansoff's Matrix - Planning for Growth.
This well known marketing tool was first published in the Harvard Business Review (1957) in an article called 'Strategies for Diversification'. It is used by marketers who have objectives for growth. Ansoff's matrix offers strategic choices to achieve the objectives. There are four main categories for selection.
Ansoff's Product/Market Matrix
Market Penetration
Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.
Market Development
Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.
Product Development
This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.
Diversification
This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business. Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for growth.
The Boston Matrix
Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.
The Boston Consulting Group's Product Portfolio Matrix
This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows.
Dogs.
These are products with a low share of a low growth market. These are the canine version of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid of these products.
Cash Cows.
These are products with a high share of a slow growth market. Cash Cows generate more more than is invested in them. So keep them in your portfolio of products for the time being.
Problem Children.
These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.
Stars.
These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars. Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows is used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures.
Problems with The Boston Matrix.
•
• • •
There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product. There is another assumption that SBUs will cooperate. This is not always the case. The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.
Gap Analysis.
Gap analysis is a very useful tool for helping marketing managers to decide upon marketing strategies and tactics. Again, the simple tools are the most effective. There's a straightforward structure to follow. The first step is to decide upon how you are going to judge the gap over time. For example, by market share, by profit, by sales and so on. This will help you to write SMART objectives. Then you simply ask two questions - where are we now? and where do we want to be? The difference between the two is the GAP - this is how you are going to get there. Take a look at the diagram below. The lower line is where you'll be if you do nothing. The upper line is where you want to be.
What is Gap Analysis?
Your next step is to close the gap. Firstly decide whether you view from a strategic or an operational/tactical perspective. If you are writing strategy, you will go on to write tactics - see the lesson on marketing plans. The diagram below uses Ansoff's matrix to bridge the gap using strategies:
Strategic Gap Analysis.
You can close the gap by using tactical approaches. The marketing mix is ideal for this. So effectively, you modify the mix so that you get to where you want to be. That is to say you change price, or promotion to move from where you are today (or in fact any or all of the elements of the marketing mix).
Tactical Gap Analysis.
This is how you close the gap by deciding upon strategies and tactics - and that's gap analysis.
Bowman's Strategy Clock
The 'Strategy Clock' is based upon the work of Cliff Bowman (see C. Bowman and D. Faulkner 'Competitve and Corporate Strategy - Irwin - 1996). It's another suitable way to analyze a company's competitive position in comparison to the offerings of competitors. As with Porter's Generic Strategies, Bowman considers competitive advantage in relation to cost advantage or differentiation advantage. There a six core strategic options:
The Strategy Clock: Bowman's Competitive Strategy Options
Option one - low price/low added value.
•
likely to be segment specific.
Option two - low price.
•
risk of price war and low margins/need to be a 'cost leader'.
Option three - Hybrid.
•
low cost base and reinvestment in low price and differentiation.
Option four - Differentiation.
(a)without a price premium:
•
perceived added value by user, yielding market share benefits.
(b)with a price premium:
•
perceived added value sufficient to to bear price premium.
Option five - focussed differentiation.
•
perceived added value to a 'particular segment' warranting a premium price.
Option six - increased price/standard.
•
higher margins if competitors do not value follow/risk of losing market share.
Option seven - increased price/low values.
•
only feasible in a monopoly situation.
Option eight - low value/standard price.
•
loss of market share.
Generic Strategies - Michael Porter (1980)
Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment: Sources of competitive advantage - are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market - does the company target a wide market, or does it focus on a very narrow, niche market?
The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.
1. Cost Leadership.
The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. 'cost advantage' is the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.
2. Differentiation
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service. The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.
3. Focus or Niche strategy.
The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.
The danger of being 'stuck in the middle.'
Make sure that you select one generic strategy. It is argued that if you select one or more approaches, and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage.
Value Chain Analysis.
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'
Lesson- Value Chain Analysis.
Primary Activities.
Inbound Logistics.
Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.
Operations.
This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.
Outbound Logistics.
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.
Marketing and Sales.
In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
Service.
This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.
Support Activities.
Procurement.
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).
Technology Development.
Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Human Resource Management (HRM).
Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.
Firm Infrastructure.
This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
Balanced Scorecard - Lesson.
The Balanced Scorecard is an approach that can be used by strategic marketing managers to control, and keep track of, key performance indicators. In fact the scorecard itself is designed to be wholly strategic since it contains long-term outcomes and drivers of success. There are four zones in a balanced scorecard namely financial, customers, business processes (or simply processes), and learning and growth. Each measure is part of a longer chain of cause and effect, and all of the measures eventually lead to outcomes (read on and this will become clearer). So the scorecard is 'balanced' in that outcomes are in balance with each other. The benefit of the scorecard is that is overcomes short-term quick fixes, and gives the strategic marketing manager a straightforward overview of the organisation. In fact, a scorecard should ideally fit onto a single sheet of paper. In fact Kaplan and Norton (1992), the originators of Balanced Scorecard, describe it as the dials in an airplane cockpit.
Learning and Growth.
Learning and Growth deals with measures of corporate success in relation to how it learns as it develops over time. So if the company makes mistakes in any way, then it must learn from them and there must be mechanisms in place to make sure that happens. Growth also includes the way in which it
generates leaders for the future and equips employees with the necessary skills that will ultimately sustain its business. Examples include skills sets, employee relations and satisfaction, and staff competences.
Internal Business Processes.
Internal business processes include all operations within the organisation. The measures would cover whether or not value is being delivered to target segments, and the value chain is tracked. Innovation and new product development would also be measured. Examples of internal business processes include Information Technology, manufacturing, marketing operations such as customer service, procurement and quality processes.
Customers.
As marketers we are very concerned with our customers. We need to make sure that they are satisfied with every aspect of their experience with our organisation. We need to make sure that we not only recruit more new customers, but that we also retain them and extend new products and services to them. We also need to make sure that we are meeting the needs of our target segments. So here, examples of customer measures include customer retention and recruitment, their satisfaction and so on.
Financial.
Financial measures are vitally important for any business. A note of caution here, since traditional measures of financial success such as Return On Investment (ROI), and made secondary to 'shareholder value.' Shareholder value is the natural measure of success, and so it is prioritised. Information on customers, markets and technology is far more widely available today, so don't bogged down with old fashioned financial measures. Resources, individuals and teams within a business are then aligned with the scorecard objectives, measures, targets and initiatives for each of the four areas of measurement
The General Electric Business Screen
The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cashflow if often a more reliable indicator of position as opposed to market growth/share. The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitutes competitive position for the original's market share.
GE Business Screen Matrix
So in come Strategic Business Units (SBU's). A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies. Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria: For market attractiveness:
• • • • • •
Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact.
. . . and for competitive position:
• • • • • • • •
Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction.
At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps:
• • • • •
One - Identify your products, brands, experiences, solutions, or SBU's. Two - Answer the question, What makes this market so attractive? Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness.
Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include:
• • • • • •
There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it.
Shell Directional Policy Matrix
The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company's competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions. However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.
A Nine Celled directional Policy Matrix
Each of the zones is described as follows:
• • • • • • • •
Leader - major resources are focused upon the SBU. Try harder - could be vulnerable over a longer period of time, but fine for now. Double or quit - gamble on potential major SBU's for the future. Growth - grow the market by focusing just enough resources here. Custodial - just like a cash cow, milk it and do not commit any more resources. Cash Generator - Even more like a cash cow, milk here for expansion elsewhere. Phased withdrawal - move cash to SBU's with greater potential. Divest - liquidate or move these assets on a fast as you can.
doc_798113530.pdf