Strategy concepts and applications

Shareholders, managers and employees are working hard for sustainable, profitable growth of their companies and often without success. Sustaining growth requires a strategy for increasing revenue without sacrificing earnings or customer satisfaction. Achieving sustainable profitable corporate growth may be the toughest managerial act in America. From 1983 to 1993, only about 30% of Fortune 1000 companies managed 10% annual compound growth in revenues. The majority of new businesses start small and stay that way (Bhide, 1999). Different companies employ various methods to achieve and maintain sustainable growth and they are ready to pay enormous sums out of the profits to chief executive officers that will manage the companies and will actually lead them to such profits.

In the ever-changing market conditions and the increasing globalization trends which make operations for companies more difficult and the necessity to increase competitive advantages tougher, the success of the profitable corporations must be studied thoroughly to learn from the mistakes or positive experiences and create guidelines for managers on how to compete in the present wild market economy.

One of the most successful recently companies is the Symantec corporation which maintained extremely high growth, which accounted for 30% during the last year, for several years in a row. The observers suggest that the success was due to perfectly weighted and worked out corporate strategy and the work of Symantec's CEOs who made it work. The main drivers behind the strategy must be studied to understand this accomplishment. The brief summary for Symantec's financial success is plotted at Figure 1.

Symantec is the global leader in information security providing a broad range of software, appliances and services designed to help individuals, small and mid-sized businesses, and large enterprises secure and manage their it infrastructure. Symantec's Norton brand of products is the worldwide leader in consumer security and problem-solving solutions. Founded in 1982 and headquartered in Cupertino, California, Symantec has operations in more than 38 countries. Currently, there are five business operating segments: consumer products, enterprise security, enterprise administration, services and other.

Revenues from sales outside of the United States represented 52%, 49% and 47% of Symantec's net revenues during fiscal 2004, 2003 and 2002, respectively. The international revenues consisted of sales primarily in the Europe, Middle East and Africa, or EMEA, region and sales from this region represented 33%, 30% and 27% of net revenues during fiscal 2004, 2003 and 2002, respectively. Thus, the trend is that the Symantec is receiving a bigger part of profits from international operations which implies that its' global business strategy has been very successful though Symantec's markets are competitive and are subject to rapid changes in technology. They are influenced by the constant change in Internet security threats and the strategic direction of major software and operating system providers, network equipment and computer hardware manufacturers, Internet service providers, application service providers and key application software vendors. As Symantec's managers state, their competitiveness depends on ability to deliver products that meet our customers' needs by enhancing existing solutions and services and offering reliable, scalable and standardized new solutions on a timely basis. Symantec has limited resources, and thus they must be deployed available resources thoughtfully. The principal competitive factors in Consumer Products, Enterprise Security and Enterprise Administration segments are quality, employment of the most advanced technology, time to market, price, reputation, financial stability, breadth of product offerings, customer support, brand recognition, and sales and marketing teams. In Services segment, the principal competitive factors include technical capability, customer responsiveness, price, ability to attract and retain talented and experienced personnel, financial stability, and reputation within the industry.

In the enterprise security and administration markets, this corporation competes against many companies who offer competing products to Symantec's technology solutions and competing services to response and support. In the area of antivirus and filtering products, some of the competitors are Computer Associates, McAfee (formerly Network Associates), Sophos, Trend Micro, and Websense. In addition, Microsoft has announced its intent to enter this market also. Furthermore, Symantec faces indirect or potential competition from operating system providers and network equipment and computer hardware manufacturers, who provide or may provide various security solutions and functions in their current and future products. These competitors have significant advantages due to their ability to influence or control the computing platforms, security layers and network tiers on, or in, which security products operate. In addition, these competitors generally have significantly greater financial, marketing or technological resources than Symantec does. Price competition is intense with most of these products and services and is expected to increase and become even more significant in the future, which may reduce Symantec's profit margins.

Taking into consideration all these market obstacles, the success of Symantec's growth can be explained by a very well worked-out corporate strategy and thus it must be given careful consideration. Strategy can be defined as a part of a well-formed, logical planning process, or 'moving from where you are to where you want to be in the future - through sustainable competitive advantage.' The strategy process includes: external analysis, competitive positioning, strategic options, implementation, learning and control. Thus, the first step in creating a successful business strategy is screening the environment for its' political, technological, economical and social aspects and defining the needs according to them. One of the most under spread models for environmental scanning is 'SWOT' analysis which includes examining strengths, weaknesses, more particularly opportunities and threats and helps to identify external changes with direct or indirect impact on business. But many researchers accuse the SWOT technique of being limited and sometimes even dangerous due to its' inefficiency, subjectivity, incompleteness and inadequate interpretation. After SWOT analysis, the most widely taught at MBA courses technique is the Porter's five forces, which is described in details on Figure 2 and include the strength of buyers' bargaining power, entry barriers, rivalry, supplier power, threat of substitutes. But Porter's factors relative to strong substitutes existence in the market would lead to the reduction of profits and growth opportunities, though Symantec managed to do exactly the opposite in this tough market which means that anticipating the nature of the market, the strategy was planned to overcome the possible problems and increase competitive advantage of Symantec over the rivals, thus delivering superior value advantage to target customers relative to competitors or delivering equivalent customer value to target purchasers but at lower cost.

Figure 2. The Five Factors of Forces Affecting Competition.

Once the environment has been studied, it is necessary to think about the competitive positioning and the growth factors. Analysis by Briance Mascarenhas and Arun Kumaraswamy of 45 fast growing corporations lead to the conclusions that the following were the growth drivers for their success.

First, the product proliferation strategy which was used by the technological companies as their products have short lives but scale rapidly, have large international demand, and have low marginal production and electronic delivery costs. Thus, the strategy was to develop innovations as fast as possible to outperform competitors and quickly diffuse their products overseas, which requires enormous resources for researches and professional management.

The main tactics when implementing the product proliferation strategy include the following. First, it is necessary to obtain financing early by: obtaining legal advice to sequence various types of financing; using angel finance/venture capitalist contacts and expertise to jumpstart firm; bringing in experienced, professional management early; developing an integrated business plan to chart product and market rollout sequence; making an early IPO based on market potential and professional management team. The second vital stage is to develop new products rapidly and systematically by: using project management and MIS to develop new products fast, within budget; planning a family of products to cover customer needs over time; designing products for scalability, different platforms, performance, easy use, consistency, and administration; developing products for different languages, regulations, currencies, and regions; using international R&D to overcome talent shortage, speed development, and overcome restrictions; using acquisitions, alliances, and internal development to obtain technologies and products. The third step is to use marketing to support product development and launch by: using marketing research to identify new product uses; making it easy for customers to try existing and new products; creating umbrella brand linking products and firm; promoting one-stop shopping or total solution to customers; ross-selling products and markets; covering multiple channels and market segments; using OEM's to gain quick distribution and overcome pricing resistance of end user. The fourth stage is to expand internationally soon by: expanding internationally to maximize product life; using Internet to achieve rapid, low-cost distribution; entering markets with high density and growth first; using international R&D to gain market entry; providing local content needed by different cultures; making international acquisitions. The fifth advice is to develop customer service for widely distributed customers by: allocating resources/personnel for customer service; designing business products for reliability, reducing customer disruptions; partnering with training companies in product development; providing automated customer service via the Internet; positioning customer service as a premium revenue generating product. The final stage for the successful product proliferation strategy is to enhance organizational and employee responsiveness by: using short lead time over competition to motivate organization; maintaining motivation in acquisitions by providing stock options in parent; distributing stock options widely in company to maintain growth momentum; developing metrics to evaluate performance of units and prioritize resource allocation; using an information system to speed product development and manage multiple units.

The main fundamentals behind this growth strategy were favorably exploited by Symantec's CEOs in the recent years. For example, answering the question 'Why is Symantec's strategy to become a full service security company while others in the market are just focusing on single areas for future development, such as antivirus?' Of a journalist, Symantec's chairman and CEO John W. Thompson, answered: 'Look at some of the market leaders from a few years ago which were focused on a single technology. Today they find their businesses stalled. Companies that specialise in firewalls today face low growth and few new customers. If you close your eyes to the emerging threat landscape your ability to service customers is limited. The nature of today's threats means that antivirus technology alone is not enough; you need a combination of tightly integrated technologies operating at each tier of the network'. Another fundamentals behind this strategy can be traced in the words of Symantec officials on their competitiveness, presented at the beginning of this essay.

The second successful rapid growth strategy is mass market development strategy which involves reconfiguring a manufactured product that changes expectations revealing a new, mass market potential. The potential market needs to be developed over time and regulatory, cultural, transportational, production and cost barriers need to be overcome, as the potential market becomes known to the firm, it must consolidate it and keep out potential entrants. The main implementation methods are reduction of costs and prices to appeal to a mass market and using aggressive marketing strategies.

The third is increasing value to select customers strategy and maximize their profits on selected customers. The fourth strategy is knows as the distributions innovation strategy which can be used by the newcomers to the industry to break into the market segments which have been underserved by the incumbents. The already existing companies in this market area dominate some channels and they do not want to break the existing relations by introducing new channels.

This refers to international markets and a new company trying to enter it and distribution innovations may depend on facilitating technical change such as credit card usage, efficient postal systems, telephone penetration, and Internet access. The fundamental point for implementing this strategy is understanding the weaknesses of the operations and services of already existing companies in this very market segments and then exploiting existing channels them with innovation and adjusting for the possible mistakes.

The fifth, or the acquisition and consolidation strategy, can be pursued in fragmented industries composed of numerous firms. Industry deregulation and innovation create market disequilibrium that encourages acquisition and consolidation because deregulation increases competition and weakens many firms, that may merge to reduce costs and to increase their market power. Innovations in technology or operating methods can create untapped scale economies in specific functions that firms pursue through consolidation after acquisition. This strategy was successfully applied by Symantec lately and thus deserves consideration.

The first step is to develop new business model and acquisition target profile by identifying sources of scale economies in the industry; defining functions to integrate, to decentralize, to outsource, and insource after acquisitions, developing a profile of ideal acquisition targets; making acquisitions early to obtain choice picks and lower prices; benchmarking post-acquisition rub-off benefits.

The second step in the acquisition and consolidation strategy is refocusing acquisitions to fit new business model by: integrating functions that have scale economies; retaining management talent in acquired companies or bringing in specialized talent; decentralizing functions where acquisitions have an edge; outsourcing functions where parent and acquisition have limited resources; insourcing functions where firm has an edge that were previously outsourced because of small scale; investing in human resources and infrastructure to improve productivity; extending new business model to acquisitions; refocusing acquisitions on market growth segments; developing and cross-selling related products and services.

The final stage is to further enhance acquisition capabilities of parent by: using new technologies to manage larger volume; targeting and developing relationships with larger suppliers and customers; elevating role of investor relations and providing forward looking information; investing in more acquisitions with greater capital resources of parent. When implementing this strategy, it is vitally important to keep strong investor relations and upgrade all the information for the financial community to maintain their interest in the company.

All the growth strategies are supported by scale, scope and/or time-based advantages and each strategy has its' own mix of the multiple advantages. Scale advantages refer to lower unit costs that occur when increasing the volumes of production/services as well as higher prices permitted by stronger market influence and stronger brand name, this also allows to exploit purchasing economies and satisfaction of larger customers' needs. The scope advantages relate to domain of the firm's customer, market, product, geographic, and technology segments and change in it which allows to shift the shared cost structure, customer benefits such as bundling and interoperability, and firm growth prospects tied to growth of the underlying segments. Time-based advantages encompass first mover effects, such as wider choice of resources and longer time to learn or build a reputation, as well as benefits associated with reduced cycle time, and quicker diffusion. To make a recapitulation, Symantec's recent corporate strategy possesses fundamentals of proliferation, mass market development, acquisition and consolidation strategies and they are recapitulated in Table 1.

Table 1. Sources of Advantages Within Symantec's Growth Strategies.

Strategy

Source of advantage

Scale

Scope

Time

Product Proliferation

Low unit production anddistribution costs, global demand

Consistency and umbrella brand across products; Cross-selling products and markets

Early domination of product category, quick product development and diffusion

Mass Market Development

Reconfigure product to have mass market demand

Broaden geographic scope; Outsource functions to reduce costs and increase capacity

Develop policies that travel; Use alliances to hasten international expansion