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Session 11Session 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

Concentrated growthConcentrated growth directs its directs its resources to the profitable growth of a resources to the profitable growth of a single product, in a single market, with a single product, in a single market, with a single dominant technologysingle dominant technology

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Market DevelopmentMarket Development

Market developmentMarket development commonly ranks second commonly ranks second only to concentration as the least costly and only to concentration as the least costly and least risky of the 15 grand strategies least risky of the 15 grand strategies It consists of marketing present products, often It consists of marketing present products, often with only cosmetic modifications, to customers with only cosmetic modifications, to customers in related market areas by adding channels of in related market areas by adding channels of distribution or by changing the content of distribution or by changing the content of advertising or promotion advertising or promotion Frequently, changes in media selection, Frequently, changes in media selection, promotional appeals, and distribution are used promotional appeals, and distribution are used to initiate this approach to initiate this approach

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Product DevelopmentProduct Development

Product developmentProduct development involves the substantial involves the substantial modification of existing modification of existing products or the creation products or the creation of new but related of new but related products that can be products that can be marketed to current marketed to current customers through customers through established channels established channels

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InnovationInnovation

These companies seek to reap the initially high These companies seek to reap the initially high profits associated with customer acceptance of profits associated with customer acceptance of a new or greatly improved producta new or greatly improved productThen, rather than face stiffening competition as Then, rather than face stiffening competition as the basis of profitability shifts from innovation the basis of profitability shifts from innovation to production or marketing competence, they to production or marketing competence, they search for other original or novel ideas search for other original or novel ideas The underlying rationale of the grand strategy The underlying rationale of the grand strategy of innovation is to create a new product life of innovation is to create a new product life cycle and thereby make similar existing cycle and thereby make similar existing products obsolete products obsolete

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Horizontal IntegrationHorizontal Integration

When a firm’s long-term strategy is When a firm’s long-term strategy is based on growth through the acquisition based on growth through the acquisition of one or more similar firms operating at of one or more similar firms operating at the same stage of the production-the same stage of the production-marketing chain, its grand strategy is marketing chain, its grand strategy is called called horizontal integrationhorizontal integration

Such acquisitions eliminate competitors Such acquisitions eliminate competitors and provide the acquiring firm with and provide the acquiring firm with access to new markets access to new markets

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Vertical IntegrationVertical Integration

When a firm’s grand strategy is to acquire When a firm’s grand strategy is to acquire firms that supply it with inputs (such as raw firms that supply it with inputs (such as raw materials) or are customers for its outputs materials) or are customers for its outputs (such as warehouses for finished products), (such as warehouses for finished products), vertical integrationvertical integration is involved is involved

The main reason for backward integration is The main reason for backward integration is the desire to increase the dependability of the the desire to increase the dependability of the supply or quality of the raw materials used as supply or quality of the raw materials used as production inputs production inputs

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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

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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

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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.

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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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