Strategic Management Module 2 – MG University
Strategic ManagementModule 2 – MG University
Prepared By
Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.
Manu Melwin JoyAssistant Professor
Ilahia School of Management Studies
Kerala, India.Phone – 9744551114
Mail – [email protected]
Contents
• Business level strategies.– Cost leadership, Differentiation, Focus.
• Corporate level strategies.– Stability strategies.– Expansion strategies – Intensification, Integration,
International expansion.– Diversification stratégies, Merger, Acquisitions,
Strategic alliance.– Turnaround strategies
Corporate Level Strategies
Intensification strategies
Market penetration
• Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. Often firms will rely on advertising to attract new customers with existing markets.
Examples of Market penetration
• Nike features famous athletes in print and television ads designed to take market share within the athletic shoes business from Adidas and other rivals.
Examples of Market penetration• McDonald’s has pursued
market penetration in recent years by using Latino themes within some of its advertising. The firm also maintains a Spanish-language website at http://www.meencanta.com; the website’s name is the Spanish translation of McDonald’s slogan “I’m lovin’ it.” McDonald’s hopes to gain more Latino customers through initiatives such as this website.
Market Development
• Market development
involves taking existing
products and trying to
sell them within new
markets.
Examples of Market Development
• One way to reach a new market is
to enter a new retail channel.
Starbucks has stepped beyond
selling coffee beans only in its stores
and now sells beans in grocery
stores. This enables Starbucks to
reach consumers that do not visit its
coffeehouses.
Examples of Market Development
• Entering new geographic areas is another
way to pursue market development.
Philadelphia-based Tasty Baking Company
has sold its Tastykake snack cakes since
1914 within Pennsylvania and adjoining
states. Now it is extensively distributing
Tastykake’s products within the
southeastern United States. Displaced
Pennsylvanians in the south rejoiced.
Product Development
• Product development
involves creating new
products to serve
existing markets.
Examples of Product Development
• In the 1940s, for example,
Disney expanded its offerings
within the film business by
going beyond cartoons and
creating movie featuring real
actors.
Examples of Product Development
• Coca-Cola and Pepsi regularly
introduce new varieties—such
as Coke Zero and Pepsi Cherry
Vanilla—in an attempt to take
market share from each other
and from their smaller rivals.
Integration strategies
Vertical Integration
• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
Examples of Vertical Integration
• Oil companies like ConocoPhillips can be involved in all stages of the value chain, including crude oil exploration, drilling for oil, shipping oil to refineries, refining crude oil into products such as gasoline, distributing fuel to gas stations, and operating gas stations.
Forward Integration
• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
Examples of Forward Integration
• Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney’s characters and movies. This allows Disney to capture profits that would otherwise be enjoyed by another store.
Backward Integration
• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
Examples of Backward Integration
• Ford Motor Company created subsidiaries that provided key inputs to vehicles such as rubber, glass, and metal. This approach ensured that Ford would not be hurt by suppliers holding out for higher prices or providing materials of inferior quality.
Horizontal Integration
• It is a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage.
Example of Horizontal Integration
• One example of horizontal integration is what happened between the infamous Daimler Benz and Chrysler merger (car developing, manufacturing and retailing).
Acquisition
• An acquisition takes place when one company purchases another company. Generally, the acquired company is smaller than the firm that purchases it.
Examples of Acquisition
• Disney was much bigger than Miramax and Pixar when it joined with these firms in 1993 and 2006, respectively, thus these two horizontal integration moves are considered to be acquisitions.
Merger• A merger is a combination
of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash or both the organization are dissolved and the assets and liabilities are combined and new stock is issued.
Examples of Merger• Big oil got even bigger in
1999, when Exxon and Mobil signed a $81 billion agreement to merge and form Exxon Mobil. ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings.
Strategic Alliance
• A strategic alliance is a
cooperative arrangement
between two or more
organizations that does
not involve the creation
of a new entity.
Examples of Strategic Alliance
• In June 2011,Twitter
announced the formation of
a strategic alliance with
Yahoo! Japan. The alliance
involves relevant Tweets
appearing within various
functions offered by Yahoo!
Japan.
Diversification strategies
• Firms using diversification
strategies enter entirely new
industries. While vertical
integration involves a firm
moving into a new part of a
value chain that it is already is
within, diversification requires
moving into new value chains.
Examples of Diversification strategies
• Avon's move to market
jewellery through its
door-to-door sales force
involved marketing new
products through
existing channels of
distribution.
Diversification strategies
Concentric Diversification• When an organization takes up
an activity in such a manner
that is related to the existing
business definition of one or
more of firms businesses, either
in terms of customer groups,
customer’s functions or
alternative technologies, it is
called concentric diversification.
Example of Concentric Diversification
• The addition of tomato
ketchup and sauce to the
existing "Maggi" brand
processed items of Food
Specialities Ltd. is an
example of technological-
related concentric
diversification
Conglomerate Diversification• When an organization adopts a
strategy which requires taking of
those activities which are unrelated
to the existing businesses definition
of one or more of its businesses
either in terms of their respective
customer groups, customer functions
or alternative technologies, it is called
conglomerate diversification.
Examples of Conglomerate Diversification
• Example of Indian company which have adopted apart of growth and expansion through conglomerate diversification the classic examples is of ITC, a cigarette company diversifying into the hotel industry.
International Expansion
Export
• Exporting is an effective entry strategy for companies that are just beginning to enter a new foreign market. It’s a low-cost, low-risk option compared to the other strategies.
Imports
• Importing is the flipside of exporting. Importing refers to buying goods and services from foreign sources and bringing them back into the home country.
LicensingLicensing is another way to enter a foreign market with a limited degree of risk. Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc).
Example of Licensing
• Examples of licenses
include a company using
the design of a popular
character, e.g. Mickey
Mouse, on their
products.
FranchisingFranchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues.
Example of Franchise
• Examples of franchises
include McDonalds,
Subway, 7-11 and Dunkin
Donuts.
Joint Ventures
An equity joint venture is
a contractual, strategic
partnership between two
or more separate
business entities to
pursue a business
opportunity together.
Example of Joint Ventures
Sony-Ericsson is a joint
venture by the Japanese
consumer electronics
company Sony Corporation
and the Swedish
telecommunications
company Ericsson to make
mobile phones.
Stability strategies
Stability strategies
Stability strategy is a
strategy in which the
organization retains its
present strategy at the
corporate level and
continues focusing on its
present products and
markets.
Examples of Stability strategiesSteel Authority of India has
adopted stability strategy
because of over capacity in steel
sector. Instead it has
concentrated on increasing
operational efficiency of its
various plants rather than going
for expansion. Others industries
are ‘heavy commercial vehicle’,
‘coal industry’.
Examples of Stability strategiesCigarette, liquor industries
fall in this category because
of strict control over
capacity expansion. Both
these industries require
license under the provisions
of Industries (Development
and regulations) Act, 1951.
Pause/ Proceed with Caution Strategy
It is employed by the firm
that wish to test the ground
before moving ahead with a
full fledged grand strategy,
or by firms that have an
intense pace of expansion
and wish to rest for a while
before moving ahead
Example• In the India shoe market
dominated by Bata and Liberty, Hindustan Levers better known for soaps and detergents, produces substantial quantity of shoes and shoe uppers for the export market. In late 2000, it started selling a few thousand pairs in the cities to find out the market reaction. This is a pause proceed with caution strategy before it goes full steam into another FMCG sector that has a lot of potential
No-Change StrategyIt is a conscious decision to
do nothing new. The firm
will continue with its
present business definition.
When a firm has a stable
internal and external
environment the firm will
continue with its present
strategy.
Profit Strategy• A profit strategy is one that
capitalizes on a situation in which old
and obsolete product or technology
is being replaced by a new one. This
type of strategy does not require
new investment, so it is not a growth
strategy. Firms adopting this strategy
decide to follow the same
technology, at least partially, while
transiting into new technological
domains.
Examples of Profit Strategy
• Sylvania, RCA, and GE are
among the firms that
followed this strategy. They
decided to stay in the
vacuum tube market until
the “end of the game.”
Retrenchment Strategies
Retrenchment strategy• A retrenchment grand strategy is
followed when an organization
aims at a contraction of its activities
through substantial reduction or
the elimination of the scope of one
or more of its businesses in terms
of their respective customer
groups, customer functions, or
alternative technologies either
singly or jointly in order to improve
its overall performance.
Examples of Retrenchment strategy• General Motors of the
United States stopped
producing a number of
"makes" of automobile. GM
decided that it needed to
retrench by concentrating on
just a few "makes." It hoped
this would help it return to
profitability.
Turnaround strategies• Turn around strategies derives
their name from the action
involved that is reversing a
negative trend. There are certain
conditions or indicators which
point out that a turnaround is
needed for an organization to
survive. An organization which
faces one or more of these issues
is referred to as a ‘sick’ company.
Turnaround strategies• There are three ways in which
turnarounds can be managed– The existing chief executive and
management team handles the entire turnaround strategy with the advisory support of a external consultant.
– In another case the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job.
– The last method involves the replacement of the existing team specially the chief executive, or merging the sick organization with a healthy one.
Examples of Turnaround strategies• Xerox revealed a Turnaround
Programme in December 2000, which included cutting $1 billion in costs, and raising up to $4 billion through the sale of assets, exiting non-core businesses and lay-offs. Subsequently, in August 2001, Mulcahy was made CEO. Xerox continued to report losses in 2001, but it returned to profit in 2002 and continued to report profits in 2003.
Divestment strategy
• A divestment strategy
involves the sale or
liquidation of a portion of
business, or a major
division.
Divestment strategy
• TATA group is a highly diversified entity
with a range of businesses under its
fold. They identified their non – core
businesses for divestment. TOMCO was
divested and sold to Hindustan Levers as
soaps and a detergent was not
considered a core business for the Tatas.
Liquidation Strategy• A retrenchment strategy which
is considered the most extreme and unattractive is the liquidation strategy, which involves closing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities and the stigma of failure.
Examples of Liquidation Strategy
• JC Penney recently sold its
Eckerd chain of drugstores to
focus on the corporation’s core
business of department stores
and Internet and catalog sales.
Studies show that between 33
per cent and 50 per cent of all
acquisitions are later divested.
Business Level Strategies
Business Level Strategies
• Business-level strategy
addresses the question of
how a firm will compete
in a particular industry.
• It is a general way of
positioning a firm within
an industry.
Business Level Strategies
Competitive dimensions• According to Porter, two
competitive dimensions are the keys to business-level strategy.
• The first dimension is a firm’s source of competitive advantage.
• The second dimension is firms’ scope of operations.
Cost Leadership• Perhaps the most famous
cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world.
• The firm’s advertising slogans such as “Always Low Prices” and “Save Money. Live Better” communicate Walmart’s emphasis on price slashing to potential customers.
Common characteristics
• The ability to charge low prices and still make a profit is challenging.
• Cost leaders manage to do so by emphasizing efficiency.
• As part of the effort to be efficient, most cost leaders spend little on advertising, market research, or research and development.
• Many cost leaders rely on economies of scale to achieve efficiency. Economies of scale are created by selling more items.
Examples of Cost leadership
• McDonald's - McDonald's has been extremely successful with this strategy by offering basic fast-food meals at low prices. They are able to keep prices low through a division of labor that allows it to hire and train inexperienced employees rather than trained cooks.
Examples of Cost leadership
• Ikea -The Swedish furniture retailer Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level of service.
Examples of Cost leadership
• Southwest Airlines - Southwest attempts to offer the lowest prices possible by being more efficient than traditional airlines. They minimize the time that their planes spend on the tarmac in order to keep them flying and to keep profits up.
Differentiation
• A firm following a
differentiation strategy
attempts to convince
customers to pay a premium
price for its good or services
by providing unique and
desirable features.
Examples of Differentiation
• Apple - Steve Jobs said this about the difference between Dell and Apple: Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation.
Examples of Differentiation
Examples of Differentiation
Examples of Differentiation
Focused cost leadership strategy• A focused cost leadership strategy
requires competing based on
price to target a narrow market.
• A firm that follows this strategy
does not necessarily charge the
lowest prices in the industry.
Instead, it charges low prices
relative to other firms that
compete within the target market.
Examples of Focused cost leadership
Redbox uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1.
Focused Differentiation strategy• A focused differentiation
strategy requires offering
unique features that fulfill the
demands of a narrow market.
• Some firms using a focused
differentiation strategy
concentrate their efforts on a
particular sales channel, such as
selling over the Internet only.
Examples of Focused Differentiation
The dedication of Mercedes-Benz to cutting-edge technology, styling, and safety innovations has made the firm’s vehicles prized by those who are rich
enough to afford them.