11

Session 10 & 11Session 10 & 11

Long Term Objectives, Long Term Objectives, Generic and Grand Generic and Grand

StrategiesStrategies

Session ObjectivesSession Objectives

1.1. Setting your dominant long term Setting your dominant long term objective.objective.

2.2. Define the 3 generic (drivers) of effective Define the 3 generic (drivers) of effective competitive strategies.competitive strategies.

3.3. Define and clarify 15 recurring grand Define and clarify 15 recurring grand strategies.strategies.

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Long-Term ObjectivesLong-Term Objectives

Short-run profit maximization is rarely the best Short-run profit maximization is rarely the best approach to achieving sustained corporate approach to achieving sustained corporate growth and profitability growth and profitability

Types of Long Term Objectives: Types of Long Term Objectives: – ProfitabilityProfitability – Productivity– Productivity– Competitive PositionCompetitive Position – Employee development– Employee development– Employee RelationsEmployee Relations – Productivity– Productivity– Tech LeadershipTech Leadership – Public Responsibility– Public Responsibility

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Usage Frequencies of Long Usage Frequencies of Long Term ObjectivesTerm Objectives

(N = 82)(N = 82)ProfitabilityProfitability 89%89%

GrowthGrowth 8282

Market ShareMarket Share 66 66

Social ResponsibilitySocial Responsibility 65 65

Employee WelfareEmployee Welfare 62 62

Product/Service QualityProduct/Service Quality 60 60

R&DR&D 54 54

DiversificationDiversification 51 51

EfficiencyEfficiency 50 50

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Criteria used in preparing

objectives

FlexibleAchievable

Understandable Measurable

Acceptable

Suitable Motivating

Qualities of Long-Term Qualities of Long-Term ObjectivesObjectives

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Forces Driving Industry Forces Driving Industry CompetitionCompetition

Potential entrants

Threat of new entrants

Suppliers

Bargaining powerof suppliers

Buyers

Bargaining powerof buyers

Substitutes

Threat of substitute products or services

Industry competitors

Rivalry AmongExisting Firms

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Generic StrategiesGeneric Strategies

A long-term BL strategy must be A long-term BL strategy must be based on a core idea about how based on a core idea about how the firm can best compete in the the firm can best compete in the marketplace. The popular term marketplace. The popular term for this core idea is for this core idea is generic generic strategystrategy. .

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Three Generic StrategiesThree Generic Strategies

Differentiation

Low-cost leadership

Focus

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3 Generic Strategies3 Generic Strategies

1.1.Striving for overall Striving for overall low-cost leadershiplow-cost leadership in the in the industry. industry.

2.2.Striving to create and market unique products Striving to create and market unique products for varied customer groups through for varied customer groups through differentiationdifferentiation. .

3.3.Striving to have special appeal to one or more Striving to have special appeal to one or more groups of consumers or industrial buyers, groups of consumers or industrial buyers, focusingfocusing on their cost or differentiation on their cost or differentiation concernsconcerns

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Low-Cost LeadershipLow-Cost Leadership

Low-cost producers usually excel at cost Low-cost producers usually excel at cost reductions and efficiencies reductions and efficiencies They maximize economies of scale, They maximize economies of scale, implement cost-cutting technologies, implement cost-cutting technologies, stress reductions in overhead and in stress reductions in overhead and in administrative expenses, and use administrative expenses, and use volume sales techniques to propel volume sales techniques to propel themselves up the earning curve themselves up the earning curve A low-cost leader is able to use its cost A low-cost leader is able to use its cost advantage to charge lower prices or to enjoy advantage to charge lower prices or to enjoy higher profit marginshigher profit margins

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DifferentiationDifferentiation

Strategies dependent on differentiation are Strategies dependent on differentiation are designed to appeal to customers with a special designed to appeal to customers with a special sensitivity for a particular product attribute sensitivity for a particular product attribute By stressing the attribute above other product By stressing the attribute above other product qualities, the firm attempts to build customer qualities, the firm attempts to build customer loyalty loyalty Often such loyalty translates into a firm’s ability to Often such loyalty translates into a firm’s ability to charge a premium price for its product charge a premium price for its product The product attribute also can be the marketing The product attribute also can be the marketing channels through which it is delivered, its image channels through which it is delivered, its image for excellence, the features it includes, and its for excellence, the features it includes, and its service networkservice network

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FocusFocus

A focus strategy, whether anchored in a low-cost A focus strategy, whether anchored in a low-cost base or a differentiation base, attempts to attend to base or a differentiation base, attempts to attend to the needs of a particular market segmentthe needs of a particular market segmentA firm pursuing a focus strategy is willing to service A firm pursuing a focus strategy is willing to service isolated geographic areas; to satisfy the needs of isolated geographic areas; to satisfy the needs of customers with special financing, inventory, or customers with special financing, inventory, or servicing problems; or to tailor the product to the servicing problems; or to tailor the product to the somewhat unique demands of the small- to medium-somewhat unique demands of the small- to medium-sized customer sized customer The focusing firms profit from their willingness to The focusing firms profit from their willingness to serve otherwise ignored or underappreciated serve otherwise ignored or underappreciated customer segments customer segments

For each of the ThreeFor each of the Three

RequirementsRequirements– Skills/resourcesSkills/resources– Organizational Organizational

RisksRisks

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Requirements for Generic Requirements for Generic Competitive StrategiesCompetitive Strategies

Generic Strategy

Overall cost leadership

Differentia-tion

Focus

Commonly Required Skillsand Resources

• Sustained capital investment and access to capital

• Process engineering skills• Intense supervision of labor• Products designed for ease in

manufacture• Low-cost distribution system• Strong marketing abilities• Product engineering• Creative flare• Strong capability in basic research• Corporate reputation for quality or

technological leadership• Unique combination of skills• Strong cooperation from channels

• Combination of above policies directed at the particular strategic target

Common Organizational Requirements

• Tight cost control• Frequent, detailed control reports• Structured organization and

responsibilities• Incentives based on meeting strict

quantitative targets

• Strong coordination among functions in R&D, product development, and marketing

• Subjective measurement and incentives instead of quantitative measures

• Amenities to attract highly skilled labor, scientists, or creative people

• Combination of above policies directed at the regular strategic target

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Risks of the Generic StrategiesRisks of the Generic StrategiesRisks of Cost Leadership

Cost of leadership is not sustained

•Competitors imitate

•Technology changes

•Other bases for cost leadership erode

Proximity in differentiation is lost

Cost focusers achieve even lower cost in segments

Risks of Differentiation

Differentiation is not sustained

•Competitors imitate

•Bases for differentiation become less important to buyers

Cost proximity is lost

Differentiation focusers achieve greater differentiation in segments

Risks of Focus

Focus strategy is imitated

Target segment becomes unattractive

•Structure erodes

•Demand disappears

Broadly targeted competitors overwhelm segment

•Segment’s differences from others narrow

•Advantages of broad line increase

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Types of Grand StrategiesTypes of Grand Strategies

Consortia Consortia

Concentrated Growth Concentrated Growth

Market Development Market Development

Product DevelopmentProduct Development

InnovationInnovation

Horizontal Integration Horizontal Integration

Vertical Integration Vertical Integration

Concentric Diversification Concentric Diversification

Conglomerate Diversification Conglomerate Diversification

TurnaroundTurnaround

DivestitureDivestiture

LiquidationLiquidation

Bankruptcy Bankruptcy

Joint Ventures Joint Ventures

Strategic Alliances Strategic Alliances

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Concentrated GrowthConcentrated Growth

A grand strategy in which a firm A grand strategy in which a firm directs its resources to the directs its resources to the profitable growth of a single profitable growth of a single

product, in a single market, with a product, in a single market, with a single dominant technology.single dominant technology.

In 2011, McDonald’s uses promotional In 2011, McDonald’s uses promotional campaign “Monopoly” to increase the rate campaign “Monopoly” to increase the rate of use of their current customers. If you of use of their current customers. If you make a game out of it, people will make a game out of it, people will purchase your products to play. purchase your products to play.

http://www.associatedcontent.com/article/6239272/increasing_your_sales_using_concentrated.html?cat=3

Example 1Example 1

Best Buy focused on the ‘Concept Stores’ Best Buy focused on the ‘Concept Stores’ and the initiatives that improved its and the initiatives that improved its performance and differentiated the performance and differentiated the company from its main competitor.company from its main competitor.

http://www.ibscdc.org/businesscasebooks-pdfs/Growth%20Stratiges%20Vol.%20II.pdf

Example 2Example 2

Paypal revolutionized financial services Paypal revolutionized financial services through its on-line person-to-person (P2P) through its on-line person-to-person (P2P) money transfer service. Paypal’s growth money transfer service. Paypal’s growth strategy is to increase its customer base strategy is to increase its customer base and sales through focusing on its online and sales through focusing on its online payment market.payment market.

http://www.ibscdc.org/businesscasebooks-pdfs/Growth%20Stratiges%20Vol.%20II.pdf

Example 3Example 3

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Market DevelopmentMarket Development

A grand strategy of marketing A grand strategy of marketing present products. Often with present products. Often with

only cosmetic modification, to only cosmetic modification, to customers in related customers in related

marketing areas.marketing areas.

Pacific Andes achieved considerable Pacific Andes achieved considerable growth in seafood and vegetable business growth in seafood and vegetable business within a short span expanding into other within a short span expanding into other countries. It also increased its global countries. It also increased its global market share and gained a sustainable market share and gained a sustainable competitive advantage through synergy. competitive advantage through synergy.

http://www.ibscdc.org/businesscasebooks-pdfs/Growth%20Stratiges%20Vol.%20II.pdf

Example 1Example 1

Toyota expanded its presence in the Toyota expanded its presence in the European car market. Toyota succeeded in European car market. Toyota succeeded in

localizing its strategies in tune with the localizing its strategies in tune with the needs of the European car market. Toyota needs of the European car market. Toyota also analyzed its strategy in Europe in the also analyzed its strategy in Europe in the wake of currency fluctuations and the new wake of currency fluctuations and the new

needs of the market.needs of the market.

http://www.ibscdc.org/businesscasebooks-pdfs/Growth%20Stratiges%20Vol.%20II.pdf

Example 2Example 2

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Product DevelopmentProduct Development

A grand strategy that A grand strategy that involves the substantial involves the substantial modification of existing modification of existing products that can be products that can be marketed to current marketed to current

customers.customers.

The entire Nikon group is implementing the The entire Nikon group is implementing the “Nikon Product Assessment” to create new “Nikon Product Assessment” to create new products which offer enhanced power products which offer enhanced power consumption efficiency, are smaller and consumption efficiency, are smaller and lighter, use less harmful substances, and lighter, use less harmful substances, and utilise Eco-glass. utilise Eco-glass.

http://www.nikon.com/about/csr/report/2004/eco_e_09.

pdf

Example 1Example 1

Example 2Example 2

Miller/Coors with their Coors Miller/Coors with their Coors Light cold themed packaging Light cold themed packaging

bells and whistles: frost brewed, bells and whistles: frost brewed, cold activated can, wide cold activated can, wide

mouthed, cold filtered, home mouthed, cold filtered, home keg…keg…

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Example 3Example 3

Sears Circa 1975 with their “buy Sears Circa 1975 with their “buy your stocks where you buy your your stocks where you buy your socks” expansion into financial socks” expansion into financial services: Discover Card, Dean services: Discover Card, Dean

Witter, Coldwell Banker, Allstate Witter, Coldwell Banker, Allstate InsuranceInsurance

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InnovationInnovation

A grand strategy that seeks to A grand strategy that seeks to reap the premium margins reap the premium margins

associated with creation and associated with creation and customer acceptance of a new customer acceptance of a new

product or service.product or service.

Apple is one of the most creative Apple is one of the most creative companies in the world. It designs and companies in the world. It designs and launches every Mac, iPhone, iPad. Its launches every Mac, iPhone, iPad. Its innovation on electronic products is so innovation on electronic products is so successful that everyone wants to own the successful that everyone wants to own the new Apple products.new Apple products.

(I wrote it.)(I wrote it.)

Example 1Example 1

Google’s most recent innovation is on the Google’s most recent innovation is on the Android OS for smartphones. It will Android OS for smartphones. It will challenge Apple's iPhone in the hotly challenge Apple's iPhone in the hotly competitive world of mobile devices. competitive world of mobile devices.

http://money.cnn.com/magazines/fortune/mostadmired/2010/snapshots/11207.html

Example 2Example 2

Example 2Example 2

Virgin Galactic – For Virgin Galactic – For profit commercial and profit commercial and consumer space travel consumer space travel

and transportationand transportation

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Google’s most recent innovation is on the Google’s most recent innovation is on the Android OS for smartphones. It will Android OS for smartphones. It will challenge Apple's iPhone in the hotly challenge Apple's iPhone in the hotly competitive world of mobile devices. competitive world of mobile devices.

http://money.cnn.com/magazines/fortune/mostadmired/2010/snapshots/11207.html

Example 3Example 3

A grand strategy based on A grand strategy based on growth through the acquisition growth through the acquisition of similar firms operating at the of similar firms operating at the same stage of the production-same stage of the production-

marketing chain.marketing chain.

Horizontal IntegrationHorizontal Integration

Example 1Example 1

Wachovia merging with First Wachovia merging with First Union only to be acquired by Union only to be acquired by

Wells FargoWells Fargo

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Example 2Example 2

USAirways merging with USAirways merging with Piedmont AirlinesPiedmont Airlines

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Exxon Acquiring Exxon Acquiring Mobil in 2000 for Mobil in 2000 for

$85.1 Billion$85.1 Billion

Example 3Example 3

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Vertical IntegrationVertical Integration

A grand strategy based on the acquisition of firms A grand strategy based on the acquisition of firms that supply the acquiring firm with inputs or new that supply the acquiring firm with inputs or new customers for its outputs.customers for its outputs.

Backward VI is the desire to increase the Backward VI is the desire to increase the dependability of the supply or quality of the raw dependability of the supply or quality of the raw materials used as production inputs materials used as production inputs

Forward VI is the desire to gain greater control of Forward VI is the desire to gain greater control of the distribution/marketing/selling/service of the distribution/marketing/selling/service of products or servicesproducts or services

AT&T has ownership over companies that AT&T has ownership over companies that transmit equipments, including stations, cable transmit equipments, including stations, cable lines, telephones, etc. which tremendously lines, telephones, etc. which tremendously helped AT&T in providing one stop services helped AT&T in providing one stop services and products. Without paying AT&T for its and products. Without paying AT&T for its entitled infrastructure, other companies would entitled infrastructure, other companies would never be able to use or provide similar services never be able to use or provide similar services or products which AT&T is said to be a or products which AT&T is said to be a “dominating winning mix”.“dominating winning mix”.

http://ccit300.wikispaces.com/Horizontal+Integration

Example 1Example 1

Starbucks originally started as a roaster Starbucks originally started as a roaster and retailer of coffee-beans, when its and retailer of coffee-beans, when its founder, Howard Schultz joined the founder, Howard Schultz joined the company as a young salesman. The company as a young salesman. The company is immensely vertically integrated company is immensely vertically integrated for one purpose alone, maintaining perfect for one purpose alone, maintaining perfect quality throughout the value-chain. quality throughout the value-chain.

http://www.techiteasy.org/2007/07/28/starbucks-an-example-of-vertical-integration//

Example 2Example 2

Apple figured out how to link the content, the hardware, Apple figured out how to link the content, the hardware, the software, and the pricing and distribution the software, and the pricing and distribution mechanisms, all more or less under one company's mechanisms, all more or less under one company's control. However, Apple is controlling the parts of the control. However, Apple is controlling the parts of the operation that touch customer experience. Apple operation that touch customer experience. Apple aggressively uses contract manufacturing rather than aggressively uses contract manufacturing rather than having to manage having to manage everything everything itself. Apple has dug even itself. Apple has dug even deeper into vertical integration by announcing that it deeper into vertical integration by announcing that it now intends to design the very chips that go into some now intends to design the very chips that go into some of its products.of its products.http://blogs.hbr.org/hbr/mcgrath/2009/12/vertical-http://blogs.hbr.org/hbr/mcgrath/2009/12/vertical-integration-can-work.htmlintegration-can-work.html

Example 3Example 3

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Vertical and Horizontal IntegrationVertical and Horizontal Integration

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Concentric DiversificationConcentric Diversification

Concentric diversificationConcentric diversification involves the involves the acquisition of businesses that are related to acquisition of businesses that are related to the acquiring firm in terms of technology, the acquiring firm in terms of technology, markets, or products markets, or products With this grand strategy, the selected new With this grand strategy, the selected new businesses possess a high degree of businesses possess a high degree of compatibility with the firm’s current businesses compatibility with the firm’s current businesses The ideal concentric diversification occurs The ideal concentric diversification occurs when the combined company profits increase when the combined company profits increase the strengths and opportunities and decrease the strengths and opportunities and decrease the weaknesses and exposure to risk the weaknesses and exposure to risk

The recent entry of Bell Atlantic The recent entry of Bell Atlantic Corporation, a telephone company, into Corporation, a telephone company, into the video programming business.the video programming business.

http://bizcovering.com/management/http://bizcovering.com/management/business-business-strategiesstrategies-in-action/-in-action/#ixzz1bC3scaBo#ixzz1bC3scaBo

Example 1Example 1

Dell Computers is pursing concentric Dell Computers is pursing concentric diversification by manufacturing and marketing diversification by manufacturing and marketing consumer electronic products (Flat Panel TVs, consumer electronic products (Flat Panel TVs, MP3 players, online music-downloading store.) MP3 players, online music-downloading store.)

This is an example of Personal computer This is an example of Personal computer business becoming more aligned with the business becoming more aligned with the entertainment business because both are entertainment business because both are

becoming more and more digital.becoming more and more digital.thinkpositive.ciprasystems.com/Admin/thinkpositive.ciprasystems.com/Admin/Common/163.pptCommon/163.ppt

Example 2Example 2

Bill Gates (sorry - ahem - MS) bought Bill Gates (sorry - ahem - MS) bought Hotmail, which added a valuable e-mail Hotmail, which added a valuable e-mail

service to the other internet activities and service to the other internet activities and brought Microsoft a bright future. brought Microsoft a bright future.

http://www.thinkingmanagers.com/http://www.thinkingmanagers.com/management/business-diversity.phpmanagement/business-diversity.php

Example 3Example 3

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Conglomerate DiversificationConglomerate Diversification

Occasionally a firm, particularly a very large Occasionally a firm, particularly a very large one, plans acquire a business because it one, plans acquire a business because it represents the most promising investment represents the most promising investment opportunity available. This grand strategy is opportunity available. This grand strategy is commonly known as commonly known as conglomerate conglomerate diversificationdiversification. . The principal concern of the acquiring firm is The principal concern of the acquiring firm is the profit pattern of the venturethe profit pattern of the ventureUnlike concentric diversification, conglomerate Unlike concentric diversification, conglomerate diversification gives little concern to creating diversification gives little concern to creating product-market synergy with existing product-market synergy with existing businesses businesses

General Electric is an example of a firm General Electric is an example of a firm that is highly diversified. GE makes that is highly diversified. GE makes locomotives, light bulbs, and refrigerators. locomotives, light bulbs, and refrigerators. GE manages more credit cards than GE manages more credit cards than American Express. GE owns more aircraft American Express. GE owns more aircraft that American Airlines.that American Airlines.

http://bizcovering.com/management/http://bizcovering.com/management/business-strategies-in-action/business-strategies-in-action/#ixzz1bC4CLca9#ixzz1bC4CLca9

Example 1Example 1

ITC, a primarily cigarette company, is ITC, a primarily cigarette company, is pursing conglomerate diversification by pursing conglomerate diversification by entering into hotel industry.entering into hotel industry.

thinkpositive.ciprasystems.com/Admin/thinkpositive.ciprasystems.com/Admin/Common/163.pptCommon/163.ppt

Example 2Example 2

ESSAR GROUP is pursing conglomerate ESSAR GROUP is pursing conglomerate diversification by entering into these fields: diversification by entering into these fields: iron and steel, oil support services, iron and steel, oil support services, shipping, and marine constructions. shipping, and marine constructions.

thinkpositive.ciprasystems.com/Admin/thinkpositive.ciprasystems.com/Admin/Common/163.pptCommon/163.ppt

Example 3Example 3

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TurnaroundTurnaround

The firm finds itself with declining profitsThe firm finds itself with declining profitsAmong the reasons are economic recessions, Among the reasons are economic recessions, production inefficiencies, and innovative production inefficiencies, and innovative breakthroughs by competitors breakthroughs by competitors Strategic managers often believe the firm can Strategic managers often believe the firm can survive and eventually recover if a concerted survive and eventually recover if a concerted effort is made over a period of a few years to effort is made over a period of a few years to fortify its distinctive competences. This is fortify its distinctive competences. This is turnaroundturnaround..Two forms of retrenchment: Two forms of retrenchment:

– Cost reduction Cost reduction – Asset reduction Asset reduction

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DivestitureDivestiture

A A divestiture strategydivestiture strategy involves the sale involves the sale of a firm or a major component of a firmof a firm or a major component of a firm

When retrenchment fails to accomplish When retrenchment fails to accomplish the desired turnaround, or when a the desired turnaround, or when a nonintegrated business activity achieves nonintegrated business activity achieves an unusually high market value, strategic an unusually high market value, strategic managers often decide to sell the firm managers often decide to sell the firm

Reasons for divestiture varyReasons for divestiture vary

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LiquidationLiquidation

When liquidation is the grand strategy, When liquidation is the grand strategy, the firm typically is sold in parts, only the firm typically is sold in parts, only occasionally as a whole—but for its occasionally as a whole—but for its tangible asset value and not as a going tangible asset value and not as a going concern concern

Planned liquidation can be worthwhile Planned liquidation can be worthwhile

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BankruptcyBankruptcy

Liquidation (Chapter 7) bankruptcyLiquidation (Chapter 7) bankruptcy—agreeing —agreeing to a complete distribution of firm assets to to a complete distribution of firm assets to creditors, most of whom receive a small creditors, most of whom receive a small fraction of the amount they are owed fraction of the amount they are owed

Reorganization (Chapter 11) bankruptcyReorganization (Chapter 11) bankruptcy—the managers believe the firm can —the managers believe the firm can remain viable through reorganizationremain viable through reorganization

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Joint VenturesJoint Ventures

Occasionally two or more capable firms lack a Occasionally two or more capable firms lack a necessary component for success in a necessary component for success in a particular competitive environmentparticular competitive environment

The solution is a set of The solution is a set of joint venturesjoint ventures, which , which are commercial companies (children) created are commercial companies (children) created and operated for the benefit of the co-owners and operated for the benefit of the co-owners (parents)(parents)

The joint venture extends the supplier-The joint venture extends the supplier-consumer relationship and has strategic consumer relationship and has strategic advantages for both partnersadvantages for both partners

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Strategic AlliancesStrategic Alliances

Strategic alliancesStrategic alliances are distinguished are distinguished from joint ventures because the from joint ventures because the companies involved do not take an companies involved do not take an equity position in one anotherequity position in one another

In some instances, strategic alliances are In some instances, strategic alliances are synonymous with licensing agreements synonymous with licensing agreements

Outsourcing arrangements varyOutsourcing arrangements vary

Session ObjectivesSession Objectives

1.1. Setting your dominant long term Setting your dominant long term objective.objective.

2.2. Define the 3 generic (drivers) of effective Define the 3 generic (drivers) of effective competitive strategies.competitive strategies.

3.3. Define and clarify 15 recurring grand Define and clarify 15 recurring grand strategies.strategies.

5656

Group ExerciseGroup Exercise

For your Case Company:For your Case Company:

1.1. Are there examples of rivals that more Are there examples of rivals that more closely follow CL, Diff, and Focus?closely follow CL, Diff, and Focus?

2.2. Provide 5 different company examples Provide 5 different company examples (hypothetical is ok) of rivals deploying (hypothetical is ok) of rivals deploying one of the named grand strategies.one of the named grand strategies.

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Break Out ReportingBreak Out Reporting

Case:Case:

Industry:Industry:

Rival Generic Strategy Examples:Rival Generic Strategy Examples:

Grand Strategy Examples:Grand Strategy Examples:

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