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Principal grand strategies

Chapter 7: Strategy Formulation Looks at action plans organisations can implement
Relationship between the generic and grand strategies

Grand strategies: a comprehensive

general approach that guides an
organisation’s major actions and
enhances strategic options

Figure 7.1 The relationship between Porter’s generic strategies and Figure 7.2 The three groups of grand strategies
grand strategies

 Using the grand strategies to contribute to achieving the generic

strategies.
 Not the only options available.

INTERNAL GROWTH STRATEGIES

Strategy in action 7.1
Concentrated growth
 Known as market penetration strategy  Established in 1998 by former FNB employees
 Seeks to increase the market share of an organisation through  Regarded as leading direct insurance company in SA
concentrated marketing efforts
 Stays focused on present market and present product/services
 OUTbonus rewards
 Tries to increase the usage rate of present customers, attract non-  Intensive Marketing strategies
users to buy the product, and/or attract competitors’ customers and  Leading insurance company
convince them to switch brands
 COVID-19 Response
 Effective if specific conditions prevail
- Market not saturated
- Room to increase usage of customers
- Market share of competitors declining & sales in industry increasing
- Not much fluctuation in availability, cost, quality, price raw materials

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INTERNAL GROWTH STRATEGIES INTERNAL GROWTH STRATEGIES

Market development
 Involves expanding the portfolio of markets organisation serves
Product development
 Existing products/services – new markets  Product development focuses on improving and modifying the
 Effective when specific conditions prevail organisation’s products and services in order to increase sales
 Market development strategy effective in following conditions:  Existing markets – new/improved products
-Organisation has access to affordable and reliable distribution  Effective if specific conditions prevail
channels in areas wishing to enter - Characterised by rapid technological developments
- Cultural barriers and overcoming barriers in markets by forming - Capital available for investment:
strategic partnerships in foreign markets they wish to enter i) R & D
Strategy in Action 7.2 MTN ii) Technology
 MTN – SA multi-national mobile telecommunications company iii) Human Resources
 2016 – over 20 countries and 232.6 million subscribers
 Nigeria – 355 market share Strategy in Action 7.3: Apple
 Apr 9, 2020 - MTN dominates in Ghana & market share -56%,  Most successful design processes
 02 JUNE 2020The giant pan-African carrier MTN is enjoying  Notoriously secretive business
differing fortunes in two markets, expansion on cards in
Nigeria and tax demands making things tricky in Uganda.  Unable to find information internal operations
MTN appointed new mobile communication provider to government  Design teams key to success
(businesstech.co.za) {1 May 2021}

INTERNAL GROWTH STRATEGIES

EXTERNAL GROWTH STRATEGIES
Innovation Diversification
• Endeavours to create new product life cycles that will make similar • Adding new but related products and services to the product
existing products or services obsolete – also targets new markets line = related diversification or concentric diversification
• Effective if specific conditions prevail: • Refers to businesses diversifying into related markets or
- Customers demand differentiation industries
- Industry is characterized by rapid changes & advanced technology • Unrelated or conglomerate diversification involves adding new,
unrelated products or services in an effort to reach and
- R & D skills
penetrate new markets
- Organisational culture fosters innovation
• Effective if specific conditions prevail

Strategy in Action 7.4 Dove Range

DIVERSIFICATION STRATEGIES • Benefits of diversification:

– More attractive scope that can provide opportunities for
faster growth, higher profitability and greater stability
• Methods by which an organisation can pursue unrelated – Access to key resources like capital, technology and
diversification: expertise
- Buying a high-performing organisation in an attractive industry – Sharing of value chain activities to provide greater
- Buying a cash-strapped organisation that can be turned around economies of scale and thus lower total cost
quickly through additional capital investment • Such diversification strategies have several associated risks
- 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

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EXTERNAL GROWTH STRATEGIES

Figure 7.3 Integration strategies
Integration
• Gaining control of suppliers, distributors or competitors in a
particular industry to enhance the effectiveness and efficiency
of the organisation
• Three types: (Figure 7.3)
Vertical integration within the same industry
Backward vertical integration – over suppliers
Forward vertical integration – over distributors or retailers
» Benefits and risks
- Benefit -Tend to reduce economic uncertainties
- Risk – Overcommit scarce resources to one activity
(technology, production process)
Horizontal integration – mergers, acquisitions and
takeovers over certain values chain activities of
competitors (merger between 5 banks

DECLINE STRATEGIES DECLINE STRATEGIES

• Defensive strategies pursued when an organisation is in a
vulnerable position as a result of poor management, Liquidation
inefficiency or ineffectiveness. • Selling all the assets of the organisation in an attempt to avoid
• The national and international recession of 2009 changed the bankruptcy
way organisations conduct business. • Pursued if above strategies fail
Retrenchment or turnaround • Planned and orderly strategy to cut losses for stockholders
• Strengthening the distinctive competencies of the organisation in order • Emotional decision
to break the downward spiral with regard to sales and profits. • What happens if failure is inevitable?
– Focusing on cost reductions, re-engineering of processes, reducing • Consider bankruptcy
assets, outsourcing activities that are not core competencies,
– No hope of turning activities around
reduction of personnel, curtailment of managerial perks etc.
– Assets of the organisation are sold in parts for their tangible
– Often appoint new managers with new perspectives
worth
Divestiture
– Declare bankruptcy to avoid major debt obligations and union
• Selling a division or part of the organisation to raise capital for further contracts
acquisitions or investments

CORPORATE COMBINATION STRATEGIES Consortia

• Multi-partner alliances and highly complex linkages between
Joint ventures (General Electric – 7.6)
groups of organisations
• A temporary partnership formed by two or more
organisations for the purpose of capitalising on a particular
opportunity. Risks of combination strategies
– Partners contribute own skills and resources • Partners becoming incompatible over time
– Share equal ownership • Partners becoming too dependent on each other
• An attractive strategy when the distinct competencies of two • Risk of providing partners with more insight into their knowledge
or more organisations complement each other and skills base than intended
Strategic alliances (Cell C – 7.7)
• Organisations share skills and expertise (but not ownership) in a
business venture for a defined period, usually linked to the life
cycle of a specific project.
• Ideal for organisations that want to venture into new and
unfamiliar markets.

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COMBINATION OF GRAND STRATEGIES

• Organisations usually integrate two or more of the

above strategies in order to achieve their goals.
• See Strategy in action 7.7. • Grand strategies are pursued by organisations to achieve competitive
advantages based on cost leadership, differentiation and focus.
FUNCTIONAL STRATEGIES • Three categories: growth strategies, decline strategies and corporate
combination strategies.
Must be formulated to ensure that all organisational units,
divisions, departments and project teams do what is required • Depend on organisation’s access to resources.
in order to implement the strategy successfully. • Once an organisation has finalised its strategy, functional strategies
(Woolworths 7.8) have to be formulated.

Case studies
i. Mr Price Group Limited
ii. Shoprite Checkers (cohesion case study)