Copyright 2007 Prentice Hall Ch 5 -1 Chapter 5 Strategies in Action Strategic Management: Concepts & Cases 11 th Edition Fred David
Chap05 Strategies in Action
Nov 17, 2015
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Chapter 1 The Nature of Strategic Management
Copyright 2007 Prentice HallCh 5 -1Chapter 5Strategies in Action
Strategic Management: Concepts & Cases11th EditionFred David
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Copyright 2007 Prentice HallCh 5 -2Chapter OutlineLong-Term ObjectivesTypes of StrategiesIntegration Strategies
Copyright 2007 Prentice HallCh 5 -3Chapter Outline (contd)Intensive StrategiesDiversification StrategiesDefensive Strategies
Copyright 2007 Prentice HallCh 5 -4Chapter Outline (contd)Michael Porters Generic StrategiesMeans for Achieving StrategiesFirst Mover Advantages
Copyright 2007 Prentice HallCh 5 -5Chapter Outline (contd)OutsourcingStrategic Management in Nonprofit & Governmental OrganizationsStrategic Management in Small Firms
Copyright 2007 Prentice HallCh 5 -6
Strategies for taking the hill wont necessarily hold it. Amar BhideStrategies in Action
The early bird may get the worm, but the second mouse gets the cheese. Unknown
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Copyright 2007 Prentice HallCh 5 -7Strategies in Action
-- Quest for higher revenues
-- Quest for higher profitsCompanies Embrace Strategic Planning
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Copyright 2007 Prentice HallCh 5 -8Results expected from pursuing certain strategiesStrategies represent actions to accomplish long-term objectivesLong-Term Objectives
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Copyright 2007 Prentice HallCh 5 -9Long-Term ObjectivesObjectives --QuantifiableMeasurableRealisticUnderstandableChallenging
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Copyright 2007 Prentice HallCh 5 -10Long-Term ObjectivesObjectives --HierarchicalObtainableCongruentTime-line
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Copyright 2007 Prentice HallCh 5 -11Long-Term ObjectivesStrategists Should Avoid --Managing by ExtrapolationManaging by CrisisManaging by SubjectivesManaging by Hope
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Copyright 2007 Prentice HallCh 5 -12Varying Performance Measures by Organizational Level
Copyright 2007 Prentice HallCh 5 -13Financial vs. Strategic ObjectivesFinancial ObjectivesGrowth in revenuesGrowth in earningsHigher dividendsHigher profit marginsHigher earnings per shareImproved cash flow
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Copyright 2007 Prentice HallCh 5 -14Financial vs. Strategic ObjectivesStrategic ObjectivesLarger market shareQuicker on-time delivery than rivalsQuicker design-to-market times than rivalsLower costs than rivalsHigher product quality than rivalsWider geographic coverage than rivals
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Copyright 2007 Prentice HallCh 5 -15Financial vs. Strategic ObjectivesTrade-OffMaximize short-term financial objectives harm long-term strategic objectivesPursue increased market share at the expense of short-term profitabilityTradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues
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Copyright 2007 Prentice HallCh 5 -16Not Managing by ObjectivesManaging by extrapolationManaging by crisisManaging by subjectivesManaging by hope
Copyright 2007 Prentice HallCh 5 -17The Balanced ScorecardRobert Kaplan & David Norton --Strategy evaluation & control techniqueBalance financial measures with non-financial measuresBalance shareholder objectives with customer & operational objectives
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Copyright 2007 Prentice HallCh 5 -18Types of Strategies
Operational LevelFunctional LevelDivision LevelCorp LevelA Large Company
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Copyright 2007 Prentice HallCh 5 -19
Types of StrategiesOperational LevelFunctional LevelCompany LevelA Small Company
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Copyright 2007 Prentice HallCh 5 -20Types of Strategies
Vertical IntegrationStrategies
Forward IntegrationBackwardIntegrationHorizontalIntegration
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Copyright 2007 Prentice HallCh 5 -21Vertical Integration StrategiesGain Control Over --DistributorsSuppliersCompetitors
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Copyright 2007 Prentice HallCh 5 -22Forward Integration StrategiesGain Control Over --DistributorsRetailers
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Copyright 2007 Prentice HallCh 5 -23Forward Integration StrategiesGuidelines --Current distributors expensive or unreliableAvailability of quality distributors limitedFirm competing in industry expected to grow markedlyFirm has both capital & HR to manage new business of distributionCurrent distributors have high profit margins
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Copyright 2007 Prentice HallCh 5 -24Backward Integration StrategiesOwnership or Control --Firms suppliers
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Copyright 2007 Prentice HallCh 5 -25Backward Integration StrategiesGuidelines --Current suppliers expensive or unreliable# of suppliers is small; # of competitors is largeHigh growth in industry sectorFirm has both capital & HR to manage new businessStable prices are importantCurrent suppliers have high profit margins
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Copyright 2007 Prentice HallCh 5 -26Horizontal Integration StrategiesOwnership or Control --Firms competitors
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Copyright 2007 Prentice HallCh 5 -27Horizontal Integration StrategiesGuidelines --Gain monopolistic characteristics w/o federal government challengeCompetes in growing industryIncreased economies of scale major competitive advantagesFaltering due to lack of managerial expertise or need for particular resource
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Copyright 2007 Prentice HallCh 5 -28Types of Strategies
IntensiveStrategies
MarketPenetrationMarketDevelopmentProductDevelopment
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Copyright 2007 Prentice HallCh 5 -29Intensive StrategiesIntensive Efforts --Improve competitive position with existing products
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Copyright 2007 Prentice HallCh 5 -30Market Penetration StrategiesIncreased Market Share --Present products/servicesPresent markets Greater marketing efforts
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Copyright 2007 Prentice HallCh 5 -31Market Penetration StrategiesGuidelines --Current markets not saturatedUsage rate of present customers can be increased significantlyShares of competitors declining; industry sales increasingIncreased economies of scale provide major competitive advantage
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Copyright 2007 Prentice HallCh 5 -32Market Development StrategiesNew Markets --Present products/services to new geographic areas
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Copyright 2007 Prentice HallCh 5 -33Market Development StrategiesGuidelines --New channels of distribution reliable, inexpensive, good qualityFirm is successful at what it doesUntapped/unsaturated marketsExcess production capacityBasic industry rapidly becoming global
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Copyright 2007 Prentice HallCh 5 -34Product Development StrategiesIncreased Sales --Improving present products/servicesDeveloping new products/services
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Copyright 2007 Prentice HallCh 5 -35Product Development StrategiesGuidelines --Products in maturity stage of life cycleIndustry characterized by rapid technological developmentCompetitors offer better-quality products @ comparable pricesCompete in high-growth industryStrong R&D capabilities
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Copyright 2007 Prentice HallCh 5 -36Types of Strategies
DiversificationStrategies
Related DiversificationUnrelatedDiversification
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Copyright 2007 Prentice HallCh 5 -37DiversificationRelated When their value chains posses competitively valuable cross-business strategic fitsUnrelated When their value chains are so dissimilar that no competitively valuable cross-business relationships exist
Copyright 2007 Prentice HallCh 5 -38Related Diversification Preferred To Capitalize on:Transferring competitively valuable expertiseCombining the related activities of separate businesses into a single operation to lower costsExploiting common use of a well-known brand nameCross-business collaboration to create competitively valuable resource strengths and capabilities
Copyright 2007 Prentice HallCh 5 -39Diversification StrategiesLess Popular --More difficult to manage diverse business activitiesHowever --The greatest risk of being in a single industry is having all your eggs in one basket
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Copyright 2007 Prentice HallCh 5 -40Related Diversification May be Effective When:An organization competes in a no-growth or a slow growth industryAdding new, but related, products would significantly enhance the sales of current productsNew, but related products could be offered at highly competitive prices
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Copyright 2007 Prentice HallCh 5 -41Related Diversification May be Effective When:New, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleysAn organizations products are currently in the declining stage of the products life cycleAn organization has a strong management team
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Copyright 2007 Prentice HallCh 5 -42Conglomerate Diversification StrategiesGuidelines --Declining annual sales & profitsCapital & managerial ability to compete in new industryFinancial synergy between acquired and acquiring firmsCurrent markets for present products - saturated
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Copyright 2007 Prentice HallCh 5 -43Unrelated DiversificationFavors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performanceEntails hunting to acquire companies:Whose assets are undervaluedThat are financially distressedWith high growth potential but are short on investment capital
Copyright 2007 Prentice HallCh 5 -44Unrelated Diversification May be Effective When:Revenues derived from an organizations current products or services would increase by adding new unrelated productsAn organization competes in a highly competitive or a no growth industryAn organizations current distribution channels can be used to market new products to existing customers
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Copyright 2007 Prentice HallCh 5 -45Unrelated Diversification May be Effective When:New products have countercyclical sales patterns An organizations basic industry is experiencing declining annual sales and profitsAn organization has the capital and managerial talent to compete successfully in a new industry
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Copyright 2007 Prentice HallCh 5 -46Unrelated Diversification May be Effective When:An organization has the opportunity to purchase an unrelated business as an attractive investment opportunityThere exists financial synergy between the acquired and acquiring firmExisting markets for the present products are saturatedAntitrust action could be charged against a company
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Copyright 2007 Prentice HallCh 5 -47Types of Strategies
DefensiveStrategies
RetrenchmentDivestitureLiquidation
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Copyright 2007 Prentice HallCh 5 -48Retrenchment StrategiesRegrouping --Cost & asset reduction to reverse declining sales & profit
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Copyright 2007 Prentice HallCh 5 -49BankruptcyChapter 7 LiquidationChapter 9 MunicipalitiesChapter 11 Reorganization for CorporationsChapter 12 Family FarmersCheaper 13 Reorganization for Small Businesses and Individuals
Copyright 2007 Prentice HallCh 5 -50Retrenchment StrategiesGuidelines --Failed to meet objectives & goals consistency; has distinctive competenciesFirm is one of weaker competitorsInefficiency, low profitability, poor employee morale, pressure for stockholdersStrategic managers have failedRapid growth in size; major internal reorganization necessary
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Copyright 2007 Prentice HallCh 5 -51Divestiture StrategiesSelling a division or part of an organization
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Copyright 2007 Prentice HallCh 5 -52Divestiture StrategiesGuidelines --Retrenchment failed to attain improvementsDivision needs more resources than are availableDivision responsible for firms overall poor performanceDivision is a mis-fit with organizationLarge amount of cash is needed and cannot be raised through other sources
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Copyright 2007 Prentice HallCh 5 -53Liquidation StrategiesCompanys assets, in parts, for their tangible worthSelling
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Copyright 2007 Prentice HallCh 5 -54Liquidation StrategiesGuidelines --Retrenchment & divestiture failedOnly alternative is bankruptcyMinimize stockholder loss by selling firms assets
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Copyright 2007 Prentice HallCh 5 -55Michael Porters Generic Strategies
Cost Leadership StrategiesDifferentiation StrategiesFocus Strategies
Copyright 2007 Prentice HallCh 5 -56
Copyright 2007 Prentice HallCh 5 -57Generic StrategiesIn conjunction with differentiationEconomies or diseconomies of scaleCapacity utilization achievedLinkages w/ suppliers & distributorsCost Leadership(Type 1 and Type 2)
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Copyright 2007 Prentice HallCh 5 -58Cost LeadershipWays of ensuring total costs across value chain are lower than competitors total costsPerform value chain activities more efficiently than rivals and control factors that drive costsRevamp the firms overall value chain to eliminate or bypass some cost-producing activities
Copyright 2007 Prentice HallCh 5 -59Cost LeadershipCan be especially effective when:Price competition among rivals is vigorousRivals products are identical and supplies are readily availableThere are few ways to achieve differentiationMost buyers use the product in the same wayBuyers have low switching costsBuyers are large and have significant powerIndustry newcomers use low prices to attract buyers
Copyright 2007 Prentice HallCh 5 -60Generic StrategiesMany price-sensitive buyersFew ways of achieving differentiationBuyers not sensitive to brand differencesLarge # of buyers w/bargaining powerLow Cost Producer Advantage
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Copyright 2007 Prentice HallCh 5 -61Generic StrategiesGreater product flexibilityGreater compatibilityLower costsImproved serviceGreater convenienceMore featuresDifferentiation (Type 3)
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Copyright 2007 Prentice HallCh 5 -62DifferentiationCan be especially effective when:There are many ways to differentiate and many buyers perceive the value of the differencesBuyer needs and uses are diverseFew rival firms are following a similar differentiation approachTechnology change is fast paced and competition revolves around evolving product features
Copyright 2007 Prentice HallCh 5 -63Generic StrategiesIndustry segment of sufficient sizeGood growth potentialNot crucial to success of major competitorsFocused Strategies (Type 4 & 5)
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Copyright 2007 Prentice HallCh 5 -64Focused Strategy Can be especially effective when:The target market niche is large, profitable, and growingIndustry leaders do not consider the niche crucialIndustry leaders consider the niche too costly or difficult to meetThe industry has many different niches and segmentsFew, if any, other rivals are attempting to specialize in the same target segment
Copyright 2007 Prentice HallCh 5 -65
Copyright 2007 Prentice HallCh 5 -66Means for Achieving StrategiesTwo or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunityJoint Venture/Partnering -
Copyright 2007 Prentice HallCh 5 -67Reasons why Mergers and Acquisitions FailIntegration difficultiesInadequate evaluation of targetLarge or extraordinary debtInability to achieve synergy
Copyright 2007 Prentice HallCh 5 -68Means for Achieving StrategiesR&D partnershipsCross-distribution agreementsCross-licensing agreementsCross-manufacturing agreementsJoint-bidding consortiaCooperative Arrangements -
Copyright 2007 Prentice HallCh 5 -69Means for Achieving StrategiesManagers who must collaborate daily; not involved in developing the ventureBenefits the company not the customersNot supported equally by both partnersMay begin to compete with one of the partnersWhy Joint Ventures Fail -
Copyright 2007 Prentice HallCh 5 -70Joint VenturesGuidelines --Synergies between private and publicly held Domestic with foreign firm, local management can reduce riskComplementary distinctive competenciesResources & risks where project is highly profitable (e.g. Alaska Pipeline)Two or more smaller firms competing w/larger firmNeed to introduce new technology quickly
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Copyright 2007 Prentice HallCh 5 -71Reasons why Mergers and Acquisitions FailToo much diversificationManagers overly focused on acquisitionToo large an acquisitionDifficult to integrate different organizational culturesReduced employee moral due to layoffs and relocations
Copyright 2007 Prentice HallCh 5 -72Means for Achieving StrategiesProvide improved capacity utilizationBetter use of existing sales forceReduce managerial staffGain economies of scaleSmooth out seasonal trends in salesGain new technologyAccess to new suppliers, distributors, customers, products, creditorsMergers & Acquisitions
Copyright 2007 Prentice HallCh 5 -73Recent MergersAcquiring FirmAcquired FirmIBMAscential Software Philip MorrisPT Hanjaya Mandala SampU.S. SteelNational Steel CorpOraclePeopleSoftOSIM International LtdBrookstoneAdobe SystemsMacromediaUS AirwaysAmerican WestUnited Parcel ServiceOvernight Corp.
Copyright 2007 Prentice HallCh 5 -74First Mover AdvantagesBenefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms
Copyright 2007 Prentice HallCh 5 -75First Mover AdvantagesSecuring access to rare resourcesGaining new knowledge of key factors & issuesCarving out market shareEasy to defend position & costly for rival firms to overtakePotential Advantages
Copyright 2007 Prentice HallCh 5 -76OutsourcingCompanies taking over the functional operations of other firmsBusiness-process outsourcing (BPO)
Copyright 2007 Prentice HallCh 5 -77OutsourcingLess expensiveAllows firm to focus on core businessEnables firm to provide better servicesBenefits
Copyright 2007 Prentice HallCh 5 -78
Key Terms & ConceptsFor Review (Chapter 5)AcquisitionConcentric DiversificationBackward IntegrationConglomerate DiversificationBankruptcyCooperative ArrangementsCombination StrategyCost Leadership
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Copyright 2007 Prentice HallCh 5 -79
Key Terms & ConceptsFor Review (Chapter 5)DifferentiationFocusDiversificationStrategiesForward IntegrationDivestitureFranchisingFirst Mover AdvantagesGeneric Strategies
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Copyright 2007 Prentice HallCh 5 -80
Key Terms & ConceptsFor Review (Chapter 5)HorizontalDiversificationIntensive StrategiesHorizontalIntegrationJoint VentureHostile TakeoverLeveraged BuyoutIntegrationStrategiesLiquidation
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Copyright 2007 Prentice HallCh 5 -81
Key Terms & ConceptsFor Review (Chapter 5)Long-TermObjectivesOutsourcingMarket DevelopmentProduct DevelopmentMarket PenetrationRetrenchmentMergerVertical Integration
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