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  1. ^ Scope. The scope of an organisation refers to the breadth of its strategic domain – the number and types of industries, product lines, and market segments it competes in or plans to enter.
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  2. ^ Strategies should also detail desired levels of accomplishment on one or more dimensions of performance – such as volume growth, profit contribution, or return on investment – over specified time periods for each of those businesses and product-markets and for the organisation as a whole.
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  3. ^ how those resources are to be obtained and allocated, across businesses, product-markets, functional departments, and activities within each business or product-market.
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  4. ^ Synergy enables the total performance of the related businesses to be greater than it would otherwise be: The whole becomes greater than the sum of its parts.
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  5. ^ The three major levels of strategy in most large, multiproduct organisations are (1) corporate strategy, (2) business-level strategy, and (3) functional strategies focused on a particular product-market entry.




Details


2.2 Three Levels of Strategy: Similar Components But Different Issues


We have argued that marketing managers have primary responsibility for the marketing strategies associated with individual product or service offerings, and that their perspectives and inputs often have a major influence on the decisions that shape corporate and business-level strategies. But we haven’t said much about what those strategic decisions are. Consequently, it’s time to define what strategies are and how they vary across different levels of an organisation.

2.2.1 Strategy: A Definition


Although strategy first became a popular business buzzword during the 1960s, it continues to be the subject of widely differing definitions and interpretations. The following definition, however, captures the essence of the term:

  • A strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organisation with markets, competitors, and other environmental factors.[11]

Our definition suggests that a strategy should specify (1) what (objectives to be accomplished), (2) where (on which industries and product-markets to focus), and (3) how (which resources and activities to allocate to each product-market to meet environmental opportunities and threats and to gain a competitive advantage).

2.2.2 The Components of Strategy


A well-developed strategy contains five components, or sets of issues:

  • Scope. The scope of an organisation refers to the breadth of its strategic domain – the number and types of industries, product lines, and market segments it competes in or plans to enter. [1] Decisions about an organisation’s strategic scope should reflect management’s view of the firm’s purpose or mission. This common thread among its various activities and product-markets defines the essential nature of what its business is and what it should be.

  • Goals and objectives. Strategies should also detail desired levels of accomplishment on one or more dimensions of performance – such as volume growth, profit contribution, or return on investment – over specified time periods for each of those businesses and product-markets and for the organisation as a whole.[2]

  • Resource deployments. Every organisation has limited financial and human resources. Formulating a strategy also involves deciding how those resources are to be obtained and allocated, across businesses, product-markets, functional departments, and activities within each business or product-market.[3]

  • Identification of a sustainable competitive advantage. One important part of any strategy is a specification of how the organisation will compete in each business and product-market within its domain. How can it position itself to develop and sustain a differential advantage over current and potential competitors? To answer such questions, managers must examine the market opportunities in each business and product-market and the company’s distinctive competencies or strengths relative to its competitors.
  • Synergy. Synergy exists when the firm’s businesses, product-markets, resource deployments, and competencies complement and reinforce one another. Synergy enables the total performance of the related businesses to be greater than it would otherwise be: The whole becomes greater than the sum of its parts.[4]

2.2.3 The Hierarchy of Strategies


Explicitly or implicitly, these five basic dimensions are part of all strategies. However, rather than a single comprehensive strategy, most organisations have a hierarchy of interrelated strategies, each formulated at a different level of the firm. The three major levels of strategy in most large, multiproduct organisations are (1) corporate strategy, (2) business-level strategy, and (3) functional strategies focused on a particular product-market entry. [5] In small, single-product-line companies or entrepreneurial start-ups, however, corporate and business-level strategic issues merge.
Strategies at all three levels contain the five components mentioned earlier, but because each strategy serves a different purpose within the organisation, each emphasises a different set of issues. Exhibit 2.5 summarises the specific focus and issues dealt with at each level of strategy; we discuss them in the next sections.
Exhibit 2.5 Key components of corporate, business and marketing strategies

Strategy
components
Corporate strategy
Business strategy
Marketing strategy
Scope
  • Corporate domain: ‘Which business should we be in?’
  • Corporate development strategy:
    • – Conglomerate diversification (expansion into unrelated businesses)
    • – Vertical integration
    • – Acquisition and divestiture policies
  • Business domain: ‘Which product markets should we be in within this business or industry?’
  • Business development strategy:
    • – Concentric diversification (new products for existing customers or new customers for existing products)
  • Target market definition
  • Product-line depth and breadth
  • Branding policies
  • Product-market development plan
  • Line extension and product elimination plans
Goals and
objectives
  • Overall corporate objectives aggregated across businesses:
    • – Revenue growth
    • – Profitability
    • – ROI (return on investment)
    • – Earnings per share
    • – Contributions to other stakeholders
  • Constrained by corporate goals
  • Objectives aggregated across product-market entries in the business unit:
    • – Sales growth
    • – New product or market growth
    • – Profitability
    • – ROI
    • – Cash flow
    • – Strengthening bases of competitive advantage
  • Constrained by corporate and business goals
  • Objectives for a specific product-market entry:
    • – Sales
    • – Market share
    • – Contribution margin
    • – Customer satisfaction
Allocation of resources
  • Allocation among businesses in the corporate portfolio
  • Allocation across functions shared by multiple businesses (corporate R&D, MIS)
  • Allocation among product-market entries in the business unit
  • Allocation across functional departments within the business unit
  • Allocation across components of the marketing plan (elements of the marketing mix) for a specific product-market entry
Sources of competitive advantage
  • Primarily through superior corporate financial or human resource; more corporate R&D; better organisational processes or synergies relative to competitors across all industries
  • Primarily through competitive strategy; business unit’s competencies relative to competitors in its industry
  • Primarily through effective product positioning; superiority on one or more components of the marketing mix relative to competitors within a specific product market
Sources of synergy
  • Shared resources, technologies or functional competencies across businesses within the firm
  • Shared resources (including favourable customer image) or functional competencies across product market within an industry
  • Shared marketing resources, competencies or activities across product-market entries

2.2.4 Corporate Strategy

At the corporate level, managers must coordinate the activities of multiple business units and, in the case of conglomerates, even separate legal business entities. Decisions about the organisation’s scope and resource deployments across its divisions or businesses are the primary focus of corporate strategy. The essential questions at this level include, What business(es) are we in? What business(es) shouldwe be in? and What portion of our total resources should we devote to each of these businesses to achieve the organisation’s overall goals and objectives? Thus, new CEO Gerstner and other top-level managers at IBM decided to pursue future growth primarily through the development of Web-based services and software rather than computer hardware. They shifted substantial corporate resources – including R&D expenditures, marketing and advertising budgets, and vast numbers of salespeople – into the corporation’s service and software businesses to support the new strategic direction.
Attempts to develop and maintain distinctive competencies at the corporate level focus on generating superior human, financial, and technological resources; designing effective organisation structures and processes; and seeking synergy among the firm’s various businesses. Synergy can provide a major competitive advantage for firms where related businesses share R&D investments, product or production technologies, distribution channels, a common salesforce and/or promotional themes – as in the case of IBM.[12]

2.2.5 Business-Level Strategy

How a business unit competes within its industry is the critical focus of business-level strategy. A major issue in a business strategy is that of sustainable competitive advantage. What distinctive competencies can give the business unit a competitive advantage? And which of those competencies best match the needs and wants of the customers in the business’s target segment(s)? For example, a business with low-cost sources of supply and efficient, modern plants might adopt a low-cost competitive strategy. One with a strong marketing department and a competent salesforce may compete by offering superior customer service.[13]
Another important issue a business-level strategy must address is appropriate scope: how many and which market segments to compete in, and the overall breadth of product offerings and marketing programs to appeal to these segments. Finally, synergy should be sought across product-markets and across functional departments within the business.

2.2.6 Marketing Strategy

The primary focus of marketing strategy is to effectively allocate and coordinate marketing resources and activities to accomplish the firm’s objectives within a specific product-market. Therefore, the critical issue concerning the scope of a marketing strategy is specifying the target market(s) for a particular product or product line. Next, firms seek competitive advantage and synergy through a well-integrated programme of marketing mix elements (the 4 Ps of product, price, place, promotion) tailored to the needs and wants of potential customers in that target market.








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