From the positioning on the matrix it can be seen that there are various generic strategies, corresponding to the positions determined by the x and the y-axis. The suitability of the strategies is therefore related to the stage of the product/market evolution of the industry in which the firm competes and its competitive position in the industry
The six strategies devised by Hofer and Schendel are:
1. Share increasing strategies
2. Growth strategies
3. Profit strategies
4. Market concentration and asset reduction strategies
5. Turnaround strategies
6. Liquidation and divestiture strategies
The purpose of this type of strategy is self-explanatory and is to increase share significantly and permanently. They are usually designed to alter the competitive position of the business involved. When businesses embark on this type of strategy they usually aim to increase their market share by more than 50% of what it currently is and often as high as 100 to 150 percent of current market share. This type of strategy involves large investments to achieve the goals and so businesses attempting to increase market share to this extent must be able to attract capital in addition to that generated by the business itself. Changes often include horizontal mergers with other companies and if this is not an option then the business will need some major advantages over existing competitors to achieve large changes in share.
If the product/market is in the development stage, competition in many industries revolves around product design, product positioning and product quality. If it is in the shakeout phase competition revolves around product features, market segmentation, pricing and distribution and service effectiveness. These guidelines apply to all industries.
Although market share changes usually occur in the development or shakeout stages, it has to be noted that major changes in market share can occur in other stages of the product/market evolution:
If the leader stumbles or
A sudden breakthrough in product form technology occurs or
The business is willing to make major investments to develop advantages over time or
The business is willing to make sustained efforts to develop advantages over time
These occur in the Growth stage of market evolution and are designed to preserve the firm’s existing competitive position in a very rapidly expanding market. Major market growth usually occurs during the early stages of product/market evolution and a growth strategy has two important features:
The acquisition of resources needed to grow with the market so the business can maintain its current position
The development of new types of competitive weapons that the business will need to continue competing effectively as the growth slows and shake-out begins.
Often a company will concentrate on the first feature, which will leave it unprepared to maintain growth in the competitive environment when shake-out begins and there are different types of competition.
The reason that most companies do not concentrate on developing strategic skills is that the growth in the initial phase requires the firm to concentrate their efforts on obtaining new resources. Firms create debt and require equity financing as few can generate the cash flow internally to finance requirements. As a result, very little management time and resources are given for considering and developing the different types of organisational skills needed to survive the shake-out period. A firm will usually build on exiting strengths and rarely see their weaknesses or new conditions.
Skills can be obtained by training existing personnel to broaden their skills base, acquiring a business horizontally to complement existing resources or by hiring personnel who have previously experienced firms in the shake-out phase i.e. headhunt personnel.
A profit strategy is a shift to maximising the return on the business’s existing resources and skills.
After growth and shake-out and when competition begins to stabilize, businesses should shift their focus from growth to profitability. In the previous phases businesses concentrated on market development and asset acquisition and now they must shift their focus to market segmentation and asset utilisation.
The business must identify areas in which cost-cutting or revenue increasing might seem feasible. Options include – price increases, unit volume increases, sales mix changes, product pruning, cost reductions, asset reductions, acquisitions.
Value-added charts should be analysed for the business in question and the entire raw materials to finished product chain. These charts can indicate areas that have the biggest potential for cost saving based on value added and experience curve considerations.
This type of strategy realigns both the scope and level of asset deployments of the business to improve short-run profits and long-run prospects. This strategy is appropriate when
When the business involved has a weak competitive position during the maturity or saturation stages of product/market evolution
At the onset of the decline stage of product/market evolution.