Urgent & important Paradigms

Having set objectives the firm now has to work to achieve them. The specific path of action chosen by the firm to achieve its objectives is referred to as its strategy. It is the fundamental means a firm uses to try and achieve its objectives. Any strategy, thus defined, has the following components:

i) A product / market scope: The specific products / services and markets in which a firm operates and which define its limits of activity.

ii) Growth factor: The changes the firm plans to make in its product / market scope for ensuring its future growth.

iii) Competitive advantage: Those specific properties of individual product/market that give the firm its unique position vis-à-vid its competitors.

iv) Distinctive competence: The specific organisational strengths of a firm which help in achieving its objectives.

v) Synergy: The overall or joint effects that are sought from the firm’s various product / market scopes.

Thus, strategy seeks to achieve the firm’s objectives in the context of a specific product/market scope with a future orientation based on its internal strengths and the unique market position that it enjoys.

As an illustration let us review the strategy of a medium-sized company involved in tour operations. In terms of product/market scope the company has restricted itself to marketing of cultural tour packages in the European tourist markets. In terms of future areas of growth, the company’s tours division is involved in designing adventure tour packages for the same market. The company has evolved a competitive advantage in terms of an excellent service not easily matched by any of its close competitors while conducting tours. Most of the key personnel in tour operations have been deployed in such a way that they contribute their maximum in various tours with high degree of autonomy and constitute the company’s distinctive competence. By seeking entry in the adventure tours, in future the company would be using its existing distribution network thus marketing synergy.



There are specific steps involved in the process of strategy formulation. These are:

i) External-Internal Analysis: This analysis helps identify the really meaningful opportunities and threats which can affect the firm in the light of its own strengths and weaknesses.

ii) Generate Strategy Alternative: The next step is to generate all the possible strategy alternatives which can fulfil the objectives. One way of generating and analysing strategy alternatives is presented in Figure I.
Market
Product

Current

New
Current

(a)

(c)
New

(b)

(d)

As per the above figure there are four strategies available here:

a) Current products in current markets: Strategies which help improve the firm’s position in this area should be the first concern of the firm before moving into new, unknown and often risky areas. All those strategies, which aim to increase brand share and increase brand share and increase profitability of existing operations, should be implemented.

b) New products in current markets: The firm is already incurring costs of marketing, distributing and sales operations. Adding on new products is thus a logical way of getting benefits of economy of scale and cutting overhead costs.

c) Current products in new markets: The firm’s experience in a specific market would come in handy when it wants to launch the same product in new markets. New markets may be defined in terms of geographical area or new customer segments.

d) New product for new markets: This is by far the most risky strategy alternative which a firm can choose and it involves high risk. Diversification is the strategy alternative.

iii) Evaluating the Strategy Alternatives: All the strategy alternatives identified (in step II) may lead to achievement of objectives but not all may be realistic or feasible. The firm has to evaluate them in the context of its own aspirations, internal strengths and weaknesses, and the environmental opportunities and threats, and short list all possible strategies for consideration.

iv) Choice of Strategy: The selection of one strategy that best satisfies the objectives of the firm out of the many alternatives considered.