STRAT 6 COMPETITIVE AND GRAND STRATEGIES

Prof. JAA Lazenby

Dept of Business Management

Learning Outcomes
After completing this unit, you should be able to:
 Have a good understanding of the relationship between strategy and competitive
advantage.
 Formulate competitive strategies for your organisation.
 Formulate grand strategies for your organisation.

1. Strategic and competitive advantage

The primary goal of strategic management is to enable organisations to adapt to changes
in the environment in such a way that the success and long-term survival of the
organisation is ensured. Since 1994 South Africa has gradually entered the global business
arena and local companies today have to compete with international companies for the
disposable income of consumers, both locally and internationally. In an organisation
arena where competition is constantly increasing, success and survival is dependent on
the attainment of a competitive advantage. This means that the organisation has to
distinguish itself from competitors through distinctive competencies (special capabilities,
technologies or resources) that these competitors will not be able to copy readily.
Activities like innovative product design, low-cost-manufacturing, superior quality and
efficient after-sale service are examples of competitive advantages that are created from
distinct competencies like superior technology, committed and qualified human
resources (intellectual capital), a visionary leadership style and pro-active management.
Competitive strategies must be based on some source of competitive advantage to be
successful. One of the competitive advantages that distinguish Woolworths from its
competitors is their ability to ensure the freshness and quality of their products through
excellent supply chain management (distinctive competency). It is clear that winning
strategies are anchored in a sustainable competitive advantage. The organisation’s
strategy must attempt to influence the size and length of the organisation’s competitive
advantage. Figure 6.1 illustrates this relationship.

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Figure 6.1: The building up, maintenance and erosion of competitive advantage

BUILDING UP ADVANTAGE EROSION

PHASE PHASE PHASE

SIZE OF THE
ADVANTAGE
TIME

From this figure, it is clear that an organisation’s competitive advantage usually consists
of three phases. Firstly there is the so-called building up phase where strategies are
mainly aimed at distinguishing the organisation from other organisations, and in this way
bring about a competitive advantage and/or a unique market position. During phase two,
the advantage phase, strategies are aimed at ensuring the long-term sustainability of the
advantage and the extension thereof. Thirdly we find the erosion phase where the
organisation’s competitive advantage is usually gradually eaten away if the organisation
was not successful during phase two in ensuring a sustainable competitive advantage.

2. Generic competitive strategies

An organisation’s competitive strategy consists of the approaches and initiatives that are
used to attract customers, oppose competitive forces and improve the competitive
position of the organisation. The purpose of developing competitive strategy is described
as follows by Thompson and Strickland (1995: 116): “The objective, quite simply, is to
knock the socks off rival companies ethically and honourably, earn a competitive
advantage in the market place and cultivate a clientele of loyal customers.” To accomplish
this, the organisation mainly has the following three types of strategies at its disposal:
 Low-cost leadership. Here the organisation strives towards being the lowest cost
provider of products or services that are aimed at a wide range of clients.
 Differentiation. Here the organisation attempts to distinguish itself from other similar
organisations in order to demonstrate its uniqueness.
 Focus. Here the organisation focuses on a particular market segment, product
or technology.

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Figure 6.2: Generic competitive strategies

(Adapted from Thompson & Strickland: 2001)

TYPE OF COMPETITIVE ADVANTAGE

LOW COST DIFFERENTIATION

General low- Broad

BROAD CROSS
SECTION IN THE cost leadership differentiation
MARKET strategy
TARGET MARKET

BEST COST
STRATEGY

SMALL
MARKET Focused low Focused
SEGMENT cost strategy differentiation
strategy

A further variation of these strategies is the so-called best-cost strategy. Here the
organisation attempts to influence the price/quality perception of the client by
emphasising that its product/service is the best value for money. The best-cost strategy is
actually a combination of the low-cost and the differentiation strategy. This means that
the organisation’s prices are not necessarily the lowest in the industry, but if they are
linked to quality, it is the best buy.
The generic competitive strategy of an organisation often consists of a combination of the
above-mentioned strategies rather than of a single strategy. In this way it often happens
that focus is combined with low cost, or a combination of focus with differentiation. The
latter strategy is usually formed to serve “niche” markets and can be powerful
competitive weapons. Each generic strategy can now be viewed from up close.

2.1 Low-cost leadership strategy

A low-cost leader’s basis for competitive advantage is overall lower costs than those of
competitors. It means that organisations that follow this strategy are well aware of
factors that drive costs in their industry and the ability to manage these costs from their
organisation. This strategy is usually especially successful in markets consisting of large
numbers of price-sensitive buyers. These are therefore markets with high volumes and
low margins. It is important to pay attention to the fact that this does not concern
absolute lower costs, but much rather just lower costs relative to competitors. The
organisation must thus still be able to function profitably and the emphasis is on relatively
lower costs. Successful low-cost leaders also have the ability to make cost saving
decisions constantly in their value chain. These organisations thus place great emphasis
on the value chain and often have a good knowledge of the value chain of their major
competitors.

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Organisations pursue cost leadership for one of the following two reasons:
 To provide the lowest prices to consumers in order to gain market share in a
particular industry. This strategy is particularly successful in industries where the
market is price sensitive. In South Africa, a market that is very price-sensitive is the
disposable diaper market. These products are used by the parents of infants on a
constant basis over a period of at least two years and the money spent on diapers on
a monthly basis contribute significantly to the household budget.
 To provide the organisation with a bigger profit margin. Organisations that pursue this
strategy do not pursue price leadership, but focus on maximising their profits. Vast
capital resources are an extremely valuable competitive advantage as this provides
organisations with a variety of strategic alternatives when it comes to defending or
expanding the market share of the organisation. Should their competitors for instance
decide to embark on a price war, these organisations will be able to lower their prices
substantially (even below cost price) for a prolonged period in order to defend their
market share position. This could even lead to higher sales and therefore
bigger profits.

A low-cost leadership strategy operates best in the following circumstances:

 When tough price competition exists.
 The products in the industry are reasonably standardised and buyers cannot really be
lured on the basis of product characteristics.
 If there are not many ways on the basis of which product differentiation can be
brought about.
 Most buyers apply the product in the same way.
 When the changeover costs are very low for buyers.
 When there are big buyers that dominate the market and have a substantial influence
on prices.

A low-cost leadership strategy is risky when:

 Technological breakthroughs occur often in the industry.
 Cost advantages can easily be imitated by competitors.
 The organisation focuses so much on lower costs that other market tendencies and
movements pass unnoticed.

2.2 Differentiation strategy

The essence of a differentiation strategy is to be unique in a way that is valuable to the
buyer, and is also sustainable. Organisations can distinguish themselves and their
products/services in various ways from other organisations. Areas where differentiation
can be applied include, among others, the following: Purchases, Research and
Development, Production processes, Logistics management, Marketing, Sales, Service,
etc. The basis for competitive advantage via differentiation is products/services where
the characteristics differ significantly from those of competitors, and where buyers are
willing to pay for these differences. This implies that organisations that apply a
differentiation strategy are often in a position to demand a price premium for it. This
premium must, however, be within limits otherwise the organisation could price itself out
of the market.

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The most important advantage of differentiation is that it can bring about loyalty in
buyers. Other advantages of a differentiation strategy are:
 It creates entry barriers in the form of buyers’ loyalty.
 It increases the transfer costs for the buyer since competitors’ products are now
less attractive.
 It provides protection against substitute products.

Differentiation works best in markets where:

 Various ways exist to differentiate the product, and buyers attach value to this
differentiation.
 The product can be applied for a variety of uses.
 There are few competitors that differentiate on the same basis.

It appears as though a differentiation strategy that is based on one or more of the

following areas are more successful:
 Technological leadership
 Product quality
 Service quality

The major risks and impediments associated with a differentiation strategy are, among
others:
 To base the differentiation on something that is not really valuable to the buyer.
 To apply a differentiation that is too expensive. This causes the additional costs, which
do not necessarily justify the additional characteristics.
 Differentiation that is marketed badly. This means that the difference that is brought
about as a result of the differentiation is not effectively communicated to the buyer.
 Buyers lacking knowledge.

2.3 Focus strategy

A focus strategy entails that the organisation concentrates on a particular element or
elements. These elements can be various things, such as a particular market segment, a
particular product/service, or a certain technology.
A focus strategy based on differentiation implies that the products and services provided
to this niche market come at a high price premium. Because a niche market is relatively
small, sales figures are relatively low compared to that of mass producers. Furthermore
extensive differentiation is usually accompanied by high costs.
Harley Davidson has pursued this type of strategy very effectively for a very long time.
Their market consists of motor cycle enthusiasts, in the high-middle to high income
group, usually in their forties and with a relatively high education, who have a passion for
the open road and especially for Harley Davidson. They are fiercely loyal to Harley
Davidson and a large percentage of them demonstrate this loyalty with the distinctive
Harley-Davidson tattoo on their bodies. Harley-Davidson is engraved in their lifestyle
(demonstrated through their clothing, helmets and other paraphernalia) and most of
them belong to a Harley club that organises regular breakfast runs and other outdoor

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adventures. This loyalty has helped Harley Davidson to survive against fierce international
competition and to maintain strong financial performance over the years.
Kulula.com is an example of an airline in South Africa that focuses on low-budget flyers in
the airline industry. Their focused lowest cost strategy is based on a no-frills approach,
cutting out meals and other cost intensive activities.
A focus strategy is especially attractive when:
 The market segment is big enough.
 The segment shows good growth potential.
 The segment is also not critical to competitors.
 The organisation has the competence and resources to serve the chosen segment
effectively.
 The organisation can defend itself well in that segment and can create sufficient
goodwill.

The risks associated with a focus strategy are:

 Competitors finding ways to counter it, and in this way invalidate the focus.
 A segment that becomes so attractive that other organisations soon enter, and the
market consequently quickly reaches its saturation point.
 An organisation that goes for a focus strategy also runs the risk of getting very deeply
caught up in a particular segment with the result that other segments may remain
unnoticed.

3. Grand strategies
Porter's generic strategies identify bases from which organisations can pursue
competitive advantage. However, it is not always clear how a particular competitive
advantage is achieved practically. Grand strategies, often also referred to as business
strategies, are more specific strategies that organisations can pursue in order to achieve
cost leadership, differentiation or focus. It enables organisations to coordinate their
efforts towards the attainment of their long-term goals. Differentiation, one of Porter's
generic strategies, can be achieved in various ways. An organisation can differentiate
itself by having the most innovative and technological advanced products, by providing
the lowest priced products or by the quality of their service. Each of these differentiation
goals can be achieved by a different grand strategy or even by a combination of two or
three grand strategies. In this section we will discuss the grand strategies that are
pursued by organisations to achieve their goals and to ensure that their competitive
advantage is maintained or improved.
There are a variety of grand strategies that organisations can utilise to achieve their long-
term goals. These grand strategies can be grouped into three types of grand strategies,
namely growth strategies, decline strategies and corporate combination strategies. In the
growth strategy section, there is an internal and external growth strategy. The internal
growth strategy focuses on the internal environment of the organisation while the
external growth strategies are more focused on the market and task environment.

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3.1 Internal growth strategies

3.1.1 Concentrated growth
Concentrated growth, also referred to as market penetration, is a strategy that seeks to
increase the market share of an organisation through concentrated marketing efforts. The
organisation stays focussed on its present market as well as present products and
services. The challenge they pursue is to grow their share of the particular market
through the customisation of their product features, prices, distribution channels and
promotional strategies in order to meet the needs and expectations of consumers in that
particular market better than any of their competitors. Through this customised approach
they endeavour to increase the usage rate of their present customers, attract non-users
to buy their product, and/or attract their competitor's customers and convince them to
switch brands.
A concentrated growth strategy can be effective
 if the market for a specific product or service is not saturated,
 when there is room to increase the usage rate of present customers, and especially
 when the market shares of their major competitors have been declining while total
sales in the particular industry have been increasing
 where scale economies can provide cost benefits to organisations and
 where there is not much fluctuation in the availability, price and quality of raw
materials and other resources required to provide the specific product or service that
consumers require.

3.1.2 Market development

A market development strategy involves expanding the portfolio of markets that the
organisation serves. Present products or services are therefore introduced into new
geographic areas including other countries. Pick 'n Pay followed a market development
approach when they decided to enter the Australian market.
A market development strategy is especially effective when
 an organisation has access to reliable and affordable distribution channels in the area
that they which to enter.
 They can form strategic partnerships with organisations in the foreign country that
they wish to enter.

Cultural barriers and a lack of insight, with regard to the buying behaviour of consumers
in the foreign country, present challenges to organisations that consider entering
international markets. To overcome these barriers, some organisations decide to When
Pick and Pay entered the Australian market they acknowledged their own weaknesses in
that particular market and established a strategic partnership with an Australian
distribution company, Metcash Trading, ensuring a supply chain at least as good as any of
their competitors in the Australian market.
3.1.3 Product development
Improving and modifying the products and services of the organisation in order to
increase sales is called product development. Product development is particularly
successful when an organisation has successful products that are reaching the maturity
stage of their product life cycle. The new Corolla that Toyota was not only a technological

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improvement on the previous model, but it also boasted a new sporty look that appealed
to a wider audience. With this strategy Toyota did not only increase sales, but also
expanded their market to include the younger generation.
Product development is essential for organisations that compete in industries that are
characterised by rapid technological developments, especially when their major
competitors offer better quality products at comparable prices. However, this strategy
demands huge capital investment with regard to research and development, as
technology and the attainment of appropriate human resources.
3.1.4 Innovation
Organisations that have distinct technological competencies and capital reserves to invest
in research and development find it profitable to make innovation their grand strategy.
Instead of concentrating on extending the life cycle of their products or services through
differentiation and product development, these organisations create new product life
cycles that will make similar existing products or services obsolete. While most growth-
oriented organisations innovate from time to time, organisations that make innovation
their grand strategy use innovation as the fundamental way of relating to their markets.

3.2 External growth strategies

3.2.1 Diversification
This entails the organisation acquiring other organisations to, in this way, spread its risk.
In other words, an organisation that applies diversification argues that it is not a good
thing “to have all your eggs in one basket”, and therefore other organisations are
acquired so that the organisation can fall back on them if the existing organisation does
not perform well in certain areas. Here we also find two basic forms that the strategy can
assume:
Related or concentric diversification entails that the corporation takes up organisations
in its portfolio that are in the same industry as it is. Related diversification strategies have
potential in industries that experience slow growth or no growth. The goal is to increase
sales in this particular market by increasing the number of products consumed by each
individual consumer. Needless to say, the organisation should be able to offer the
additional products at highly competitive prices and should ensure that brand loyalty is
obtained before the additional products are introduced to the market. Concentric
diversification is also an attractive strategy for organisations whose current products or
services are in the decline stage of the product life cycle.
Unrelated or conglomerate diversification entails that the corporation acquires
organisations that are not necessarily in the same industry. The overarching goal of any
diversification strategy is to add value for shareholders and bring about a synergistic
effect (2 + 2 = 5). This is an attractive strategy when the basic industry of the organisation
is experiencing declining sales and profits, when existing markets for the products and
services of the organisation is saturated and when the organisation has the capital and
managerial talent needed to compete successfully in a new industry.
The diversification decision can be evaluated according to three tests:
 The attractiveness test. This means that the organisation that is acquired must be
attractive in terms of profitability and its return on investment.

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 The cost-of-entry test. Here the cost of diversification is looked at in order to

determine whether it is viable.
 The better-off test. Here it is about the total portfolio of the corporation. This means
that the diversification must strengthen the corporation’s total portfolio and bring
about synergy. There must also be a particular fit between the corporation and the
organisations that are taken up in its portfolio. The most important areas where these
fits must occur are: the market, operational, management, strategic advantages and
the cultural fit.

Some of the methods through which an organisation can pursue unrelated diversification
include:
 Buying a high-performing organisation in an attractive industry;
 Buying a cash-strapped organisation that can be turned around quickly through
additional capital investment;
 Buying an organisation whose seasonal and cyclical sales patterns would provide
stability to the cash flow and profitability of the organisation;
 Buying a largely debt-free organisation to improve the borrowing power of the
acquiring organisation.

In conclusion, diversification is directly concerned with extending the organisation

beyond its original boundaries (industry and market). The major benefits that
diversification can provide to an organisation include:
 more attractive scope that can provide opportunities for faster growth, higher
profitability and greater stability
 access to key resources like capital, technology and expertise
 sharing of value chain activities to provide greater economies of scale and thus lower
total cost.

The risks associated with diversification include the following:

 Ignorance about newly entered markets could result in inefficiency as a result of
inadequate knowledge about customer needs, technological developments and
environmental shifts.
 Organisations that pursue unrelated diversification run the risk of reducing their
management effectiveness. Unrelated diversification places significant demands on
senior executives due to increased complexity and technological differences across
industries. It might be very difficult for managers to understand each of the core
technologies and appreciate the special requirements of each of the individual
business units in an unrelated diversified organisation.
 Sharing value chain activities with another organisation often entail substantial costs
with regards to communication, compromise and accountability.

3.2.2 Integration
Integration strategies involve gaining control over suppliers, distributors or competitors in
a particular industry to enhance the effectiveness and efficiency of the organisation.
Integration strategies extend the scope and operations of an organisation to other
activities within the same industry. This strategy is characterised by the expansion of the

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organisation into other parts of the industry value chain directly related to the design,
production, distribution or marketing of its existing products and services. Integration
strategies can be divided into vertical and horizontal integration strategies. The primary
objective of vertical integration is to strengthen the hold of the organisation on resources
they deem critical to their competitive advantage. The purpose of vertical integration is
usually to gain better control over the distribution channel, provided that it strengthens
the competitive position of the organisation. The most important disadvantage of vertical
integration is that it traps the organisation further in a certain industry, and in this way it
can limit the mobility of the organisation. Vertical integration can be achieved in two
directions, namely forward and backward.
Backward vertical integration means that organisations are taken over in the direction of
the suppliers (upstream). This type of strategy is particularly common in industries where
low cost and certainty of supply are vital to maintaining the competitive advantage of the
organisation in its market. Toyota South Africa pursued this strategy when they gained
ownership of Raylite batteries and of Armstrong, manufacturers of shock absorbers.
Backward vertical integration is appropriate when the current suppliers of an organisation
are unreliable, too costly, or incapable of meeting the needs of the organisation with
regards to parts, components or materials. Needless to say, adequate capital and human
resources are prerequisites for pursuing this strategy.
Forward vertical integration means that organisations are taken over in the direction of
clients (downstream) - gaining ownership over distributors or retailers. Establishing web
sites to sell products directly to consumers is also a form of forward integration as the
organisation cuts out retailers and distributes its products directly to consumers. Forward
integration is attractive when existing distributors/retailers are unreliable, have high
profit margins (which inflates the price that the consumer has to pay for the product) or
are incapable of servicing the consumers of the organisation' products effectively.
There are benefits and risks associated with vertical integration. The cumulative potential
benefit of vertical integration strategies is that they tend to reduce the economic
uncertainties and transactions costs facing an organisation in a particular industry.
However, vertical integration can sometimes lead an organisation to over commit scarce
resources to a given technology, production process or other activity that could become
obsolete in a certain industry. This strategy is also capital intensive, resulting in high fixed
costs that may leave the organisation vulnerable in an industry downturn. Lastly, vertical
integration can pose problems with regard to integrating different sets of capabilities,
skills, management styles and values.
Horizontal integration takes place when an organisation seeks ownership or increased
control over certain value chain activities of its competitors. This takes place through
mergers, acquisitions and take-overs. This type of strategy is attractive when an
organisation competes in a growing industry, where the achievement of economies of
scale could provide cost benefits or other forms of competitive advantage and where an
organisation has both the capital and human talent needed to successfully manage an
expanded organisation. The merger between Volkskas, United, Trust Bank and Allied that
resulted in ABSA Bank is a good example of horizontal integration. Horizontal integration
can pose problems with regard to integrating the differences in organisational culture,
capabilities, skills, management styles and values of the organisations involved in the
merger or acquisition.

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3.3 Decline strategies

Decline strategies are also often referred to as defensive strategies. These strategies are
pursued when an organisation finds itself in a vulnerable position as a result of poor
management, inefficiency and ineffectiveness. There are three types of defensive
strategies, namely:
3.3.1 Retrenchment or turnaround
Some organisations find themselves in a situation where their profits are declining.
Declining profits can result from a variety of reasons, including a decline in sales, adverse
economic conditions, increased competition, products becoming outdated or obsolete
(competitors launch innovative products), ineffective production and distribution
processes and poor management.
A turnaround strategy focuses on strengthening the distinctive competencies of the
organisation in order to break the downward spiral with regards to sales and profits.
Activities focus on ways to reduce costs and assets in order to stabilise the financial
condition of the organisation and to put the organisation on a path of recovery. Emphasis
is often on re-engineering of processes and the introduction of Total Quality Management
programmes to increase the cost-effectiveness of the organisation. Activities often
include the selling of land and buildings, the outsourcing of activities that are not the core
competencies of the organisation, reduction of personnel and curtailment of managerial
perks. Organisations that pursue turnaround strategies often appoint new managers with
new perspectives and specialised skills to facilitate dramatic changes like restructuring
and re-engineering.
Turnaround strategies are appropriate for organisations that have distinctive
competencies, but have been managed poorly or have grown too quickly and therefore
need major reorganisation in order to survive. These organisations are usually plagued by
inefficiency, low productivity, poor profitability, low employee morale and pressure from
their shareholders to increase performance.
3.3.2 Divestiture
Divestiture involves selling a division or part of the organisation to raise capital for further
acquisitions or investments. It can also be part of an overall retrenchment strategy to get
rid of divisions that are unprofitable or do no longer fit in with the strategic direction that
the organisation is embarking on. In diversified organisations divestiture will entail selling
one or two organisations that have become liabilities in the portfolio of the organisation
due to poor profitability, which often results from a lack of expertise, or increased
competition in a particular industry.
3.3.3 Liquidation
This strategy entails selling all the assets of an organisation in an attempt to avoid
bankruptcy. Liquidation is usually pursued when efforts to turn an organisation around
through retrenchment and divestiture have been unsuccessful and ceasing operations are
the only alternative to bankruptcy. Liquidation is therefore a planned and orderly way of
converting the assets of the organisation into cash in an attempt to minimise losses for
the shareholders of the organisation.
The decision to embark on liquidation is usually a very emotional one, because it basically
means admitting defeat and embarking on activities that result in hardship for the
employees and other stakeholders of the organisation. However, pursuing liquidation is a

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better option than bankruptcy as management has the opportunity to plan the activities
in such a way that the loss to all the stakeholders of the organisation is minimised.

4. Situation specific strategies

Apart from the abovementioned strategies, the organisation must also constantly ensure
that its strategy adapts to the specific situation. Consequently we thus look briefly at
strategies for specific situations. It is, however, of cardinal importance that these
strategies are not handled as recipes, but rather as suggestions that can possibly
be considered.

4.1 Strategies for competing in turbulent, high-velocity markets

Here organisations find themselves in industry situations that are characterised by rapid
technological change and short product life cycles because of the pace at which next-
generation products are being introduced and the entry of new rivals into the market.
The industry is established, with rapid change being the prevailing condition. Personal
computer hardware and software, video games, wireless telecommunications,
prescription drugs and the whole arena of cyberspace is typical examples of this industry
situation.
Change is a fundamental characteristic of this type of market environment and thus poses
a challenge for strategy making. An organisation in this industry has three strategic
options for dealing with the change:
 It will react to change. To react to change means that the organisation defends itself.
The organisation can, for example, respond to a competitor’s new product with a
better one. This is a defensive strategy and unlikely to create a fresh opportunity.
 It will anticipate change. Anticipating change is still fundamentally a defensive
strategy because forces outside the organisation are controlling what is going to
happen in it. Anticipation means that the organisation is looking ahead to analyse
what is going to happen and then prepare and position itself for that future.
 It will lead change. To lead change is inherently an offensive strategy because it
means being first in the market with a new product or service. Organisations in this
situation are industry leaders.

What will determine competitive success in these fast-changing markets? The

organisation’s abilities to improvise, experiment, adapt, reinvent and regenerate as
market and competitive conditions shift rapidly and sometimes unpredictably are key
factors for success.
The following strategic moves may help the organisation to gain a competitive advantage:
 In order to stay at the leading edge of technological know-how, it is important for
organisations to invest aggressively in R&D.
 Specific organisational capabilities are required for an organisation to respond quickly
to the moves of competitors and surprising new developments.
 Organisations do not always have all the resources and competencies to pursue so
many new technological paths and product categories. That is why it is important to
rely on strategic partnerships with outside suppliers and with companies making tie-in
products.

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 It is important to keep the company’s products and services sufficiently fresh and
exciting to stand out in the midst of all the change that is taking place.

4.2 Strategies for mature industries

In these industries we see that competition is very tough, the demand for products
stabilises, buyers are more sophisticated, costs and service are very important, product
innovations are scarce, international competition increases, profitability stabilises and
may even decrease, take-overs and mergers occur. Strategic options in industries such as
these can be the following:
 Cut product lines – concentrate on your core business.
 Place more emphasis on process innovation. Redesign processes that hold long-term
cost advantages and other advantages for clients.
 Place more emphasis on lowering costs.
 Increase sales to existing clients, and try to make client retention the core of the
marketing strategy.
 Take over competitors, provided that this can be done at a bargain. As a result of the
tough competition and pressure on margins, it can happen that bargains such as these
begin to emerge.
 Consider international expansion.

4.3 Strategies for declining industries

The most important characteristic of these industries is that the demand for the product
stagnates and starts to decline. Organisations in industries such as these must seriously
reflect on their future, and leave the industry too early rather than too late. Strategic
options here can be:
 Focus on those segments that do still show a little bit of growth.
 Differentiate on the basis of quality.
 Do everything to limit costs.

5. General guidelines for strategy formulation

The general goal with designing strategies is to, in a creative manner:
 Improve the competitive position of the organisation.
 Remember that a clear and well-formulated strategy alone cannot improve the
organisation’s position, but also helps to build the organisation’s reputation.
 Ensure that the chosen strategy has enough flexibility to absorb changes in the market
and in the broad external environment by affixing the necessary adjustments.
 Invest in the creation of a sustainable competitive advantage.
 Be aggressive in building competitive advantage and also defend it aggressively.
 Guard against merely going for strategies that can only succeed in the best scenario.
 Do not underestimate competitors.
 Be careful to attack strong competitors before a distinctive competitive advantage is
built up.
 To attack competitors’ weaknesses is often cheaper than to attack their strengths.
 Beware of a low-cost strategy without it having real cost advantages.

© Centre for Business Dynamics, School of Management, UFS 2012 65

STRATEGIC AND CHANGE MANAGEMENT

Strategy formulation is indeed an art. Do not expect to get it right the first time. It is much
rather a process of repetitive attempts that in the end leads to the best strategy. Because
it is a process it never stops, it is a cycle that occurs repetitively and the goal is to make
the necessary incremental improvements with each recapitulation. Furthermore, it may
be that the organisation reaches a certain point where this cycle must be changed
completely – miss this moment and you miss the future!

Discussion questions
 Discuss the circumstances where low costs and differentiation strategies will work
best.
 Develop a competitive strategy for your organisation.

Sources
EHLERS & LAZENBY. 2004. Strategic Management.
THOMPSON & STRICKLAND. 1995. Crafting and implementing strategy.
HAMEL & PRAHALAND. 1996. Competing for the future.

66 © Centre for Business Dynamics, School of Management, UFS 2012