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Types of Strategies

Strategy is different from vision, mission, goals, priorities, and plans. It is the result of choices executives make, on where to play and how to win, to maximize long-term value.

Growth Strategy A growth strategy entails introducing new products or adding new features to existing products. Sometimes, a small company may be forced to modify or increase its product line to keep up with competitors. Otherwise, customers may start using the new technology of a competitive company. For example, cell phone companies are constantly adding new features or discovering new technology. Cell phone companies that do not keep up with consumer demand will not stay in business very long.

Product Differentiation Strategy Small companies will often use a product differentiation strategy when they have a competitive advantage, such as superior quality or service. For example, a small manufacturer or air purifiers may set themselves apart from competitors with their superior engineering design. Obviously, companies use a product differentiation strategy to set themselves apart from key competitors. However, a product differentiation strategy can also help a company build brand loyalty.

Price-Skimming Strategy A price-skimming strategy involves charging high prices for a product, particularly during the introductory phase. A small company will use a price-skimming strategy to quickly recover its production and advertising costs. However, there must be something special about the product for consumers to pay the exorbitant price. An example would be the introduction of a new technology. A small company may be the first to introduce a new type of solar panel. Because the company is the only one selling the product, customers that really want the solar panels may pay the higher price. One disadvantage of a price-skimming is that it tends to attract competition relatively quickly.

Enterprising individuals may see the profits the company is reaping and produce their own products, provided they have the technological know-how.

Acquisition Strategy A small company with extra capital may use an acquisition strategy to gain a competitive advantage. An acquisition strategy entails purchasing another company, or one or more product lines of that company. For example, a small grocery retailer on the east coast may purchase a comparable grocery chain in the Midwest to expand its operations.

Cost Leadership Cost leadership means establishing a business network so that your cost for producing a product is less than the product cost of all competitors. You become a cost leader. However, this strategy may not work in markets in which many consumers pay more for a preferred brand. For example, consumers may prefer to pay hundreds of dollars for an iPhone, rather than less for an inexpensive but less well-known brand.

Differentiation There are ways to differentiate your product from competitors' products so that your business can create a competitive advantage. You can try to differentiate at least one characteristic of a product that is known to be important to most buyers while keeping the other characteristics of a product -- and their costs -- controlled or in line with competitors' costs for those same characteristics. You also can determine whether you will reduce costs in your primary activities, such as production or delivery of products, or in your secondary activities, such as purchasing or human resources functions.

Operations Strategy This strategy outlines steps to keep costs under check and improve operational efficiency. The focus is on arriving at decisions regarding plant layout, plant capacity, production processes, inventory management etc.

Financial Strategy

It deals with financial planning, evaluating investment proposals securing funds for various investments and controlling financial resources. Thus raising funds, acquiring assets, allocating funds to operations, using funds efficiently etc are all part of the strategy.

Marketing Strategy It deals with strategies relating to product pricing, distribution and promotion of a companys offering important issues here cover what type of products at what prices through which distribution channel and by the use of which promotional tool and sales force etc.

Human Resources Strategy HR strategy deals with hiring, training, assessing, developing rewarding motivating and retaining the number and types of employees required to run the business effectively, internal (union contracts, productivity indices, labor turnover,

absenteeism accidents etc) and external factors (labor laws, son of the soil, reservation, equal employment opportunity, employment of children and women etc) need to be carefully evaluated while formulating HR strategies.

Strategy in General Strategy, in general, refers to how a given objective will be achieved. Consequently, strategy in general is concerned with the relationships between ends and means, between the results we seek and the resources at our disposal. Strategy and tactics are both concerned with conceiving and then carrying out courses of action intended to attain particular objectives. For the most part, strategy is concerned with how you deploy or allocate the resources at your disposal whereas tactics is concerned with how you employ or make use of them. Together, strategy and tactics bridge the gap between ends and means.

Corporate versus Competitive Strategy Corporate strategy defines the markets and the businesses in which a company will operate. Competitive or business strategy defines for a given business the basis on which it will compete. Corporate strategy is typically decided in the context of

defining the company's mission and vision, that is, saying what the company does, why it exists, and what it is intended to become. Competitive strategy hinges on a company's capabilities, strengths, and weaknesses in relation to market

characteristics and the corresponding capabilities, strengths, and weaknesses of its competitors. According to Michael Porter, a Harvard Business School professor and the reigning guru of competitive strategy, competition within an industry is driven by five basic factors: 1. Threat of new entrants. 2. Threat of substitute products or services. 3. Bargaining power of suppliers. 4. Bargaining power of buyers. 5. Rivalry among existing firms. Porter also indicates that, in response to these five factors, competitive strategy can take one of three generic forms: (1) focus, (2) differentiation, and (3) cost leadership.

Cooperative Strategy: A strategic alliance is a relationship between two or more parties to pursue a set of agreed-upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. The alliance is a cooperation or collaboration that aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk.

Strategy Implementation: Strategy implementation is the process of translation of strategies and policies into action through the development of programs, budgets and procedures It is typically conducted by the middle and lower level management but is reviewed by the top management. However, programs and procedures are simply more detailed plans

for the eventual implementation of strategy. Unless the corporation is appropriately organized, programs are adequately staffed and activities are properly directed these operational plans fail to deliver the goods. To be effective a strategy must be implemented through the right organization structure and appropriate management practices. In addition, management must also ensure that there is progress towards, objectives according to plan by instituting a rigorous process of control over important activities. The following figure would help in understanding the process of strategy implementation.

Directing People should be motivated to implement a new strategy in desired ways. It is not sufficient merely to have people who can do the job; it is necessary to have people who want to do the job the way you need it done. In addition to traditional motivational techniques managers should also make use of modern techniques in order to inspire people to perk performances.

Some Fundamental Questions


Regardless of the definition of strategy, or the many factors affecting the choice of corporate or competitive strategy, there are some fundamental questions to be asked and answered. These include the following:

Related to Mission & Vision Who are we? What do we do? Why are we here? What kind of company are we? What kind of company do we want to become? What kind of company must we become?

Related to Strategy in General What is our objective? What are the ends we seek? What is our current strategy, implicit or explicit? What courses of action might lead to the ends we seek?

What are the means at our disposal? How are our actions restrained and constrained by the means at our disposal? What risks are involved and which ones are serious enough that we should plan for them?

Related to Corporate Strategy What is the current strategy, implicit or explicit? What assumptions have to hold for the current strategy to be viable? What is happening in the larger, social, political, technical and financial environments? What are our growth, size, and profitability goals? In which markets will we compete? In which businesses? In which geographic areas?

Related to Competitive Strategy What is the current strategy, implicit or explicit? What assumptions have to hold for the current strategy to be viable? What is happening in the industry, with our competitors, and in general? What are our growth, size, and profitability goals? What products and services will we offer? To what customers or users? How will the selling/buying decisions be made? How will we distribute our products and services? What technologies will we employ? What capabilities and capacities will we require? Which ones are core? What will we make, what will we buy, and what will we acquire through alliance? What are our options? On what basis will we compete?

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