Bowman Strategy Essay

1.0 Introduction Strategy is a long term directions for companies. Bennett (1996, cited by Cousins 2000) describes strategy as: â€Å"The word strategy is used to describe the direction that the organisation chooses to follow in order to fulfil its mission†. Today, strategies are vital for businesses, in many cases it helps to achieve a competitive advantage. Increasing competition in most sectors and technological development has led to accelerated changes in the global economy. In order to meet the market needs, strategies encourage and enable the adaptation of companies in a changing environment (Tribe, 2010). The aim of the report is to conduct a research on Bowman’s Strategy Clock which will demonstrate a rational, reflective and critical evaluation of the concept. To do so, the report is going to be divided in three parts. The first or the report part is going to give an overview of the Bowman’s strategy with its background. The second part will analyse the model and its different strategies by using example from companies. Then some authors’ opinions about the model will be analysed. 2.0 Bowman’s Strategy Clock 2.1 Strategy Overview In 1980 Michael Porter published his seminal book wherein he identified three generic strategies for a business to gain competitive advantage: cost leadership, product differentiation and market segmentation (Johnson et al., 2008). Basically, Porter analysed that business compete either on price (cost), on perceived value (differentiation), or by focusing on a very precise customer (market segmentation). Source: Eldring (2009) With his model, Porter (1980- cited in Eldring, 2009) explained that a company must choose between one of the three generic strategies otherwise it will be â€Å"stuck in the middle† and suffer from below-average performance. In 1996, Cliff Bowman and David Faulkner developed Bowman’s Strategy Clock Looking at Porter’s Generic strategies in a different way. This model extends Porter’s three strategic positions to eight. Figure 1 below, represents Bowman’s eight different strategies that are identified by varying levels of price and value. Figure 2: Bowman’s Strategy Clock Source: Johnson et al (2008) 2.2 Model explanation Bowman strategy is a competitive strategy. Competitive strategies are tools that businesses use to achieve competitive advantages (Johnson et al. 2005). The Bowman’s clock strategy is a more sophisticated approach, which recognizes and deals with certain criticisms of Porter’s model (Tiwari, 2009). For instance, as it has already been said, according to Porter generic model, a business has to choose one generic strategy are it means that the company is place in the middle which means being â€Å"dead†. However what Bowman believes is that a business can be both low cost and differentiated and still be successful over the long term, such as the companies Swatch, IKEA, Sainsbury and many others. In Bowman model, these companies are situated at the hybrid position, also known as combined strategy (Dobson et al. 2004). Figure 3 demonstrates that there are eight approaches on the clock in total. Meanwhile, these strategic positions can be grouped into three- risk strategies, low price strategies and differentiation strategies (Thomson & Banden-Fuller 2010, 184). Figure 3: Bowman’s Strategy Clock companies examples Source: (Thomson and Baden-Fuller, 2010: 184) To have a clear understanding of the eight different positions of Bowman’s Strategy clock, the author has decided to illustrate them with some companies’ examples. 2.2.1 Low Price Strategies Number 1 and 2 (No frills and Low price) on the clock are organisations who are going to position themselves in a part of the market which is looking for reasonable prices. The examples given are Ryanair and Easyjet. Indeed these two companies have managed to cut their costs by only focusing on their core service (every extras have to be paid by customers), also by using online bookings, and using secondary airports. The advantages of these two strategies are that the expectations of the customers who are choosing their services are very low because of the costs of the service/ products; they are more likely to be satisfied as figure 4 demonstrate it. Figure 4: Customers’ expectations Source: Cook (2008: 17) However the drawbacks of these two positions are that the only way to succeed here is through cost effectively selling quantity, and by constantly attracting new clients. These businesses will not be winning any customer loyalty contests, but they may be able to sustain themselves as long as they stay one step ahead of the consumer (Mindtools, 2012) 2.2.2 Differentiation Strategies From number 3 through number 5 (hybrid, differentiation and focused differentiation) are companies that are offering a customised product or service. The service or product is designed separately for each individual customer, and therefore customers are prepared to pay a price premium for that. The examples given is British Airways whose goal is to present better-quality service to its customers, stakeholders and employees alike (British Airways, 2010). A lot of companies in hospitality industry (such as 3 to 5 star hotels) would not try to compete on price; they would try to position themselves near position 4 or 5 on the model by offering something better, or improve a service. However in order to choose focused differentiation as strategy, businesses need to have a strong branding to make sure their customers are willing to pay a higher price for it. Strong brand have the power to capture consumer preference and loyalty (Armstrong, 2009). This is the reason why this strategy often takes place in the luxury segment. But it can also takes place in other segment such as technology, where for instance with the brand Apple. The company Apple has such strong brand images that according to a recent survey cited in Hughes (2011) consumers are extremely interested in the prospect of an Apple-branded television, that they are willing to pay a twenty percent premium over existing TV prices for such a device. Although it can be difficult for businesses to carry on the successful hybrid strategy due to the lower level of margins caused by the low costs products. As it has been mentioned earlier, companies that have both low cost and differentiated can sometimes be successful because they are quite difficult to compete against The value and quality is good and consumers are assured of reasonable prices. This combination builds customer fidelity. 2.2.3 Risk Strategies The strategies 6, 7 and 8 are called risk strategies because there is a high risk for failure when applying them within a business. For instance number 7, increasing price and keeping a low value product or service is only possible in a monopoly market situation and the customers have no choice else than to pay high price for poor value (Thomson and Baden-Fuller, 2010). However, in a competitive market, this approach remains unsustainable for long. Generally the companies arbitrarily increasing prices soon lose market share, as consumers migrate to competitors that offer the same value at lower prices. An example of a company in hospitality industry that was using high Increased price and standard values is the previous national airline of Belgium from 1923 to 2001 before its bankrupt (Castle, 2001). Regarding low value and increased price suggests Dwyer et al. (2010) that the night club cover charges as example. 2. 3 Model criticisms Although most of the researchers agree that it is an excellent model for companies to understand how to compete in the market place. Some remains sceptical regarding the position number 3 (hybrid). Simister (2011) believes that a differentiated, low cost hybrid position may be an achievable position only under certain conditions and that therefore it is not it is not applicable for every sector. The strategy clock can also lead to negative thinking and almost justify doing nothing for companies. The model’s strength is to consider competitive actions to possible moves in the clock but all of them could be damaging to business’ profit. Sometimes companies have to be ready to take a risk and make a decisive move because if they do not, another competitor will. . Conclusion The strategy clock represents a set of eight generic strategies for achieving competitive advantage: It is a very useful model to help understand how businesses compete in the market place. This is a powerful way of looking at how to establish and sustain a competitive position in a market driven economy. A competitive advantage is an advantage gained over competition by offering consumers superior value, either through lower prices or by providing additional benefits and service that justify similar, or higher, prices. By looking at the different combinations of price and perceived value, companies can begin to choose a position of competitive advantage that makes sense for them.