Term Paper on "Strategies Implementation"

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The Ansoff Matrix offers the foundation for the objective setting process within a company and sets the basis of its future directional policy. (Bennett, 1994)

The matrix involves four possible product / market combinations. As shown in the image below, these are market penetration, product development, market development and diversification. (Ansoff, 1957, 1989)

Source: Ansoff (1957, 1989)

Market Penetration is used by firms when they aim at increasing sales while still applying the same product-market strategy. This occurs by penetrating a market with the current products, and it is important to note that this strategy begins with the organization's existing customers. (Ansoff, 1957)

There are three ways companies can penetrate markets: by winning customers from competitors, by improving the quality of a product or the level of offered services, and either by making current customers to intensify their consumption of the product or attract non-users towards the product / service. All these venues will be approached through the use of tools of marketing communications. (Ansoff, 1989, Lynch, 2003)

This is a very important strategy for businesses, as the costs of retaining existing customers are significantly lower than the ones for attracting new ones, motives that make various companies start relationship marketing activities. (Lynch, 2003)

Product Development represents the strategy companies would normally apply when they want to utilize excess production capacity, fight against the entry of competitors, maintain a certain 'product innovator' reputation, make use of new technologies, or protect its market share. They will do this through significant new product development directed to the company's traditional market. (Lynch, 2003)

This strategy can often direct the company towards markets and customers that are not yet being reached by the company.

Market Development is the strategy a company will follow when it wants to enter new markets with its existing products.

This strategy might materialize in the exploration of new segments within markets, in finding new uses for the existent products and services, or the approach of new geographical areas with the purpose of enticing new customers. (Lynch, 2003)

Diversification is a distinct strategy, as it implies that the company will move out both of its current markets and products into new areas. The diversification can be made into related and unrelated domains.

Related diversification can take the form of forward (company extends business towards its outputs), backward (extending business towards its inputs - such as raw material supplying businesses) and horizontal integration (moving into related businesses). (Lynch, 2003; Macmillan et al., 2000)

Unrelated diversification will often present synergies with the original business. Nevertheless, it remains one risky alternative, as detailed knowledge regarding key success factors may not exist. (Lynch, 2003)

Diversified businesses appear to grow faster when the diversification is unrelated, nevertheless it must be noted that track records regarding diversifications are poor, as in various cases the diversifications were divested (Porter, 1987). There are also voices claiming that related diversification will be generally more profitable (Macmillan et al., 2000; Pearson, 1999). These risks that companies take by entering in territories with unknown parameters can be reduced by entering related markets. (Ansoff, 1989)

2.2. SWOT Analysis

The SWOT analysis is one of the most well-known and used analysis, evaluating the strengths and weaknesses of an organization next to its environmental opportunities and threats.

There is no acknowledged creator of the SWOT analysis, nevertheless for decades until today it has featured strategy textbooks. It can be of use in determining the degree an organization's strategies fit with its environment, and in suggesting the ways in which an organization can take advantage of its strengths and opportunities and how to cope with the weaknesses and threats. (Adams, 2005)

Strengths are meant to define the strong points of an organization, coming both from internal and external customers. They arise from internal competencies and resources that give companies a comparative advantage on the market.

Weaknesses are very important aspects to be determined, both from company's point-of-view, as also from its customer point-of-view. Weaknesses can be defined as limitations or deficiencies in one or various resources or competencies when related to competitors. They will tend to hamper an organization's performance.

Opportunities define the ways an organization could follow in order to grow within the market. By opportunity one can understand the major situations in the environment of a company, taking the form of government policies, changes in technology, social patterns, etc.

Threats represent external factors out of one organization's control materializing in seriously unfavorable situations in the environment of a company. They can take the shape of new competitor's entrance, slow or inexistent market growth, high bargaining power of key suppliers or customers, technological advances, new or revised regulations, etc.

2.3. BCG Growth-Share Matrix

BCG Matrix is a strategic management tool serving four distinct purposes: classifying the product portfolio into four business types: Stars, Question Marks, Dogs and Cash Cows; deciding what product from a company's portfolio should be given priority; classifying the product portfolio of an organization depending on their generation and cash usage; offering management strategies in order to tackle the different product lines (Cipher, 2006)

The matrix is based on two variables: relative market share and market growth, which many times appear to measure the healthiness of businesses (Kotler, 2003), and therefore, the idea that products with higher market share or that are located within a fast growing market would be expected to show relatively higher profit margins, and vice-versa.

Under the two dimensions, of relative market share and market growth, the products can be categorized as:

Cash Cows - products with high profitability, requiring low investors, because they have leadership positions in slowly growing markets. According to specialists, the surplus cash obtained from cash cows should be invested into Stars and Question Marks as a venue in creating future Cash Cows (Drummond and Ensor, 2004)

Stars - are the leading products in high growth markets. They normally generate good revenues, but they use much of it due to the market growth conditions.

Question Marks - products that have not achieved dominant market positions and therefore do not generate much cash, but do use a lot of cash due to the growing market conditions

Dogs - products draining large amounts of cash and showing little future opportunities, as a result of their low levels of market share and the highly low growth markets they are into.

The available strategies to follow are Build - in order to strengthen the market share of the product short-term earnings will be forfeited as hopes are that long-term gains will be higher. Strategy is suited to Question Marks in they way to becoming Stars

Hold - maintain the current position (share) on the market - suited to Cash Cows

Harvest - efforts to increase short-term cash flows for the longest period possible (by cutting costs or increasing prices) - suited to Cash Cows in limited future markets or to weak Cash Cows

Divest - give up the products that drain profits in order to use more efficiently the company's resources - suited for Question Marks that will not transform into Stars, and for Dogs.

2.4. PESTEL Analysis

The PESTEL analysis looks at the "radical and ongoing changes occurring in society [and that] create an uncertain environment and have an impact on the function of the whole organization" (Tsiakkiros, 2002)

Getting to know the macro-environment of an organization is important, as it allows to identify certain factors that can affect vital variables influencing the supply and demand levels of an organization, as well as its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993)

The influences it analyses are the political, economical, social, technological, environmental, and legal are meant to be used… READ MORE